Manufacturing Operation

PHARMACEUTICAL QUALITY CONTROL

Pharmaceutical Quality Control – Improving Methods & Systems

Pharmaceutical Quality Control – Improving Methods & Systems 1920 1080 Xcelpros Team

At a Glance

  • The definition of quality has evolved with changing business dynamics, particularly in regulated industries such as pharmaceutical, chemical, and food & beverage.
  • The Pharmaceutical & Drug industry witnessed a 168% increase in drug approval by the FDA in 2018 compared to 2016, testifying the growing quality adherence among manufacturers.
  • Compliance to quality guidelines is only getting more stringent with time. Pharmaceutical & Drug industry also saw high rejection (73) through 2018 including Recalls, Market Withdrawals, & Safety Alerts, highlighting the importance of quality standards set by the industry watchdog.
  • While quality is increasingly becoming an integral part of modern-manufacturing practices, our research revealed that some organizations continue to devalue the importance of quality to a mere afterthought.

Introduction

Quality plays a pivotal role in the success of a business and is no longer considered an impediment to a successful business. It’s often that the release of a product for shipment is delayed due to standards not being met, causing stress on the customer service reps working closely with Customers.

Saying yes to sub-standard ‘products to the market’, however, could be catastrophic, with damages that could at times be irreparable. Today, modern-day Quality Management is supporting technology initiatives to ensure the right systems are in place to allow the product to pass all quality checks proactively.

This article highlights just a small section of Quality Management related to processes and systems. The intent is to help businesses understand how technology has evolved with the changing business landscape and how manufacturers (in any highly regulated industry) can leverage technology such as the One-Microsoft ecosystem to stay relevant, and ahead of the competition. In this part of the series we will discuss Quality Management holistically, and follow it up with the finer aspects of Quality Management in the subsequent posts.

FIGURE 1: Supply chain within manufacturing with the ability to pivot operations

The Evolution of Quality Management

Quality management has evolved from being an afterthought to becoming a rigorous self-discipline that most modern-day manufacturing companies have taken onto themselves. What used to be quality control in the 1960s has evolved to become “total quality control” in its present form. The US FDA is tightening its norms to ensure higher quality standards, and companies are responding to such challenges by increasing their quality standards. The below timeline depicts how the definition of quality has evolved over time since the 70s.

FIGURE 2: Supply chain within manufacturing with the ability to pivot operations

Process Improvements in Quality Control

Improvements always start by first understanding the issues that reside in a department. Typical activities in the Quality control department of a Pharmaceutical company would be to

  • Manage Quality control tests
  • Manage Quality control specialists and their workload
  • Allocate and calibrate test instruments
  • Establish appropriate test methods
  • Document test specifications
  • Perform tests in the order of priority and
  • Accurately record test results.

Trending and analysis, as well as stability studies, would be a follow up of quality data that is captured for understanding the reliability of the batches being produced. This is just a quick and simplified view; in reality, all of the activities listed above have many details involved. Making sure that all processes and procedures are handled with precision ultimately reflects on how well you are able to maintain the quality standards in a Pharmaceutical company.

Processes in the Quality Department

A typical day in the life of a Quality control department could start with lab analysis and paper requests to perform quality tests on a sample size of a batch. At times it could be multiple batches for different products that are either produced in-house or received from 3rd party manufacturers. The department prepares the test instruments for each test and accurately records the test results along with any digitally signs-off on the work. If we were to take a quick view of what could be involved in ‘getting it right’, the understanding towards all essential requirements of an optimal quality process could change.

Use cases with digitization and automation have demonstrated a more than 65% reduction in deviations and over 90% faster closure times.” The Future of Quality Control, PharmaManufacturing

It involves having all the SOPs opened up in front of you to perform a test with precision and not allowing any deviation in method unless the ‘method to deviate’ is clearly spelled out. It could often be challenging to hold the people in your department compliant to the process unless there is a stringent system in place. If the system is paper-based, you are adding laborious tasks with corrections and piled up paperwork. Every time an audit occurs, it would require digging through so many stacks of paper to bring out the right answers.

FIGURE 3: Supply chain within manufacturing with the ability to pivot operations

Quality Control Systems

Pharmaceutical companies that are implementing an electronic system need to decide how tightly the system has to be built. The process could add discomfort to users due to various systemic restrictions, or an uneasiness around user errors.

People could start feeling anxious about making mistakes, as every change would have a digital stamp tied back to the person modifying the data. It could also get a bit cumbersome to fix errors after the fact in a controlled system that is validated and is 21 CFR part 11 compliant.

The idea is not to add discomfort but to build the right kind of habits in users. Ideally business users need to be given enough information about how the overall system works. A well-planned training can help the users move from discomfort to being champions promoting the process in the organization.

Anyone with a basic understanding of compliance would prefer an electronic system instead of a paper-based process, for the strength and ability to capture data as is. It then requires a change in the mindset of ‘ continuously fix errors’ to ‘proactively do it right in the first place’. At the end of the day you want to foster this efficiency in your whole organization. This can be achieved by evaluating a reliable process that could be leveraged by the Quality Control department.

Elimination of up to 80% of manual documentation work will improve productivity. The Future of Quality Control, PharmaManufacturing

Quality Management Challenges – What Does a Plant Manager Look for?

A Plant Manager would have a specific view of the business as their purview is not restricted to one department but to the overall operations of the plant. Some key concerns that typically need to be addressed by a Plant Manager or a General Manager of Plant are:

  • Quality Management
  • Compliance with evolving regulatory standards
    • Take control of your Documentation such as COA
  • Safety
    • Corrective and Preventative Actions management (CAPA)
    • Location directives
    • Raise flags when two reactive chemicals are placed in proximity
  • User Adaptability and training to conform to the new Quality standards

These concerns are typically addressed by:

  • Efficient Document Management – allows you to centralize documents into a secure repository that is seamlessly accessible. This ensures quicker decision making and effective change management. It also helps in ensuring visibility of your documents, enhances traceability by tracking amendments, and document safety with revision control features.
  • Addressing Non conformance – can be done through a unified platform to log non conformance, quality of incoming raw materials, complaints, delay, etc. This helps in addressing compliance at an early stage, paving the way for course correction and registering the same in the system.
  • Corrective & Preventive Action – a method with advanced analytical features built in to help you learn and unlearn from records of the past. As discussed, registering a non-conformance incident into the system initiates a workflow for corrective measures. This system learns from past incidents and recommends preventive action to control similar incidents from recurrence.
  • Implementing the right kind of tools and technology can help with Process automation and reduce data entry errors along with tracking process efficiency.

Identifying the right system to help make the most impact will be the first essential step to move in the right direction. Once that hurdle is crossed, it is important to build a ‘to be’ mindset instead of worrying why the system doesn’t do what your workforce is used to. Evaluate how stringent you want your process to be, based on your company’s needs and accommodate a well-defined method that is native to the application.

Key Takeaways

  • Quality management is no longer an afterthought and has evolved to become a discipline in most prosperous manufacturing organizations. Quality management which was once considered as a business function that hindered speed to market and product launch, is now embracing modern technologies to fuel innovation, bring in efficiency, eliminate the scope of incidents within a plant, and offer better predictions for the future.
  • Pharmaceutical companies that have evolved to modern, automated quality control systems are able to empower their workforce to rapidly adopt process improvements and optimize all the functions in the department.
  • The adoption of better tools in one department typically sets the standard for the entire ecosystem, including functions such as regulatory compliance, procurement, demand management, research & development, inventory and warehouse management, etc.

About XcelPros

XcelPros is a Chicago-based company and delivers transformation through technology. We offer business and technology solutions with deep industry experience in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Insurance, Discrete Manufacturing, Process Manufacturing, Distribution and Food & Beverage.

XcelPros is a Microsoft Gold Partner, Direct Cloud Solutions Provider (CSP) and a Systems Integrator (SI) offering software licensing, implementation and consulting services for Microsoft Dynamics 365, CRM, Microsoft Dynamics AX, Business Intelligence & Analytics (Power BI), SharePoint, Office 365 and Azure (Cloud, IOT, Microsoft Flow amongst many others).

Our mission is to provide integrated technology solutions that amplify impact and empower our customer’s businesses. We believe technology is the key enabler of exponential growth for us and our customers.

Contact XcelPros today to transform your business.

Call us toll-free – 1.855.411.0585 (or) visit www.xcelpros.com

how manufacturing companies are pivoting operations

The new world reality post Covid 19 – How manufacturing companies are pivoting operations?

The new world reality post Covid 19 – How manufacturing companies are pivoting operations? 1920 1080 Xcelpros Team

Introduction

Process Manufacturing companies are adapting to the sudden changes in the economic landscape due to COVID-19. Dependency on China for raw material and supplies has hindered the local US market forcing manufacturing companies to pivot operations and meet consumer needs. Starting late January, China’s industrial production came to a standstill as companies suspended their operations completely amid the lockdown. Though China is getting back on its feet now, the whole world had to take its heat as the event disrupted the global supply chain massively. In 2020, China contributes nearly 20% to the global GDP. You can now imagine the losses businesses will suffer all over the world and how long it will take to recover and ramp up operations fully.

A survey by the German company Kloepfel Consulting states that every third company has Chinese customers in a higher number, and on top of it nearly 81% of them are dependent on Chinese suppliers to run their operations.

From the above facts it can be anticipated that a major supply chain restructuring is coming on your way. Now, more than ever, integrated technology is imperative to streamline and automate the lines of business, people and processes.

FIGURE 1: Industry-wise Projected Covid-19 Impact from Minor to Severe

1=Minor impact

2=Moderate

3=Significant

4=Major

5=Severe

Source : Statista

What is the new world reality in manufacturing?

The World Health Organization (WHO) has declared COVID-19 a public health emergency which led to a seismic shift in the life of manufacturing and distribution companies. The industry is now experiencing a new reality in running operations while they continue to produce finished goods to meet customer demand. Of course, remote tools and collaboration softwares are helping certain departments within these companies to manage work remotely. However, full quarantine is not a viable alternative for certain sections of the industry that require an actively engaged workforce in manufacturing and supply chain operations.

Honeywell now plans to start making over 20 million face masks a month to help healthcare workers battle the coronavirus.

Honeywell’s move of ‘coming to aid’ at this time is commendable and is paving the path to other enterprises from the same industry. Current day consumers’ needs have shifted to safety and hygiene which in turn has become one of their business objectives.

Companies that have always been historically change-averse are now forced into a new way of working.

Conventional manufacturing and distribution organizations have always been apprehensive in making any process or technology advancements. With the sudden change in market dynamics, these businesses are realizing the need for an enhanced technology they wished they had adapted earlier. This thought process has created a forced awareness which is now their ‘new reality’ and there is no going back after that.

So, how are companies pivoting operations?

Manufacturing facilities that are already suitable to create products requiring batch processing, are taking a leap into newer areas of production in an agile mode. These companies have the facilities to accommodate materials and processes. They are familiar with proper quality testing standards and potency detection methods for batches. Quite a few companies have already pivoted to help out in every way possible. But only companies that are well automated, are the ones that can move quickly in such emergencies.

Corona Virus Pandemic is hurting the bottom line of Manufacturing Industry globally. You need to find an effective alternative sourcing strategy to survive through this massive supply-chain disruption.

FIGURE 2: Supply chain within manufacturing with the ability to pivot operations

In this ‘new normal’, companies that can pivot quickly to accommodate consumer needs will become the front runners and market leaders of the future.

Business users adapt quickly ‘only’ if they are ahead in process automation and optimization. The benefit is leveraged by using the right kind of technology that can effectively handle various processes and procedures. New-age technology is instrumental in simplifying work and transforming business users into advanced users, especially to streamline HR processes that enable users to be ready for any changes. With newer skills, users can easily adapt to sudden changes and disruptions caused due to a pandemic like COVID-19.

What do operators need to adjust to the change?

54%

of respondents believe that coronavirus could have a significant impact on their business operations.

-A PWC Survey of CFOs

A well-streamlined workflow can help the workforce fall into the rhythm. Especially workforce with native knowledge of their regular operations, need to rapidly adapt to the change in functioning. It is not always easy to handle the new set of production lines that are abruptly put in place. Operators would require a detailed understanding of the new product batch records in order to adapt to the change.

Workflow for warehouse operators should be streamlined to –

  • Guide them while using mobile devices
  • Help them progress through each step
  • Hand hold them during unknown situations
  • Allow them to record inline deviations

If companies are unprepared, they may go through a chaos during manufacturing execution. Production managers and supervisors who have also been used to familiar batch records with specific yield expectations, are now adapting to the ‘new thing’ that they need to produce. Alerts on each operation would immensely help them be aware of how the overall production job is progressing.

FIGURE 3: Supply chain within manufacturing with the ability to pivot operations

When it comes to the regular production operations, Production supervisors or Plant managers are used to seeing both the norms and deviations in the process. Without an internal view of the new product history, they will need to be extra aware of test results and yield quantities of each production job to quickly analyze and extrapolate how to adjust batch formulas, and rapidly incorporate the learnings of each production run. A rule-based algorithm that can look at the last ‘n’ batch runs and automatically suggest changes for ‘approval and instant adoption’ will be crucial to keep the process optimized in an agile manufacturing environment.

Companies that are taking up these initiatives are also required to understand how the end consumer is reacting to the new products released in the market. An easy way would be to label their products with proper QR codes that can be scanned to quickly send an end-user survey back to the manufacturer about their new product. These quick surveys help the manufacturers understand consumer feedback about the product. The feedback can be incorporated into their testing methods to make on-the-fly decisions and corrections of their manufacturing execution.

What are the few technological elements companies wished they had within operations during the Covid19 pandemic?

A question that every manufacturing company is asking to understand is how they can simplify and streamline their processes further to keep the momentum in the operations going. A few technical elements are depicted in the picture below.

Companies have asked me how all of this is different from what was recommended in the past year? It isn’t, but the need is more real now and is no more a nice-to-have. These technological advancements have become an ‘essential-to-must-have’ if businesses want to survive the current condition.

How do we get the required automation?

Unless we see what the business is at its core, it may not be possible to provide a specific view of what all changes would be needed. However, going by some assumptions there are a few business solutions that can be drawn out to help businesses to become more agile in their operations.

FIGURE 4: Batch Manufacturing Facility Agile And Optimized

All of the different ways to speed up, simplify and automate overall operations can propel companies to function a lot more efficiently and be agile to changes that are thrown at them while they are still dealing with a limited workforce.

Key Takeaways

  • There is never an individual contribution that can move a huge ship forward during difficult times. It is always the collaboration and synchrony of an entire workforce that really pushes the throttle. The trick is in how well you are able to keep your people aligned with all the technologies you invest in.
  • Technology centric Manufacturing organizations are already ahead of the market curve and when sudden changes occur, a well defined HR department of a company that has agile training plans in place helps with the changes that are thrown at them.
  • Finally, it is important to understand that even though temporarily it may feel as though companies need to bear the cost of advancement and changes, in a bigger schema a good technology stack like Microsoft is essential for the overall success of any organization.

Recommendation to the reader: Evaluate Microsoft suite of tools to help your business and stay agile in this volatile market.

Xcelpros is a direct Microsoft Cloud Solutions Provider and can help you with your business continuity and make you nimble during these times. We are currently offering various discounts on multiple Microsoft products and Transformation packages. Contact us right away!

About XcelPros

XcelPros is a Chicago-based company and delivers transformation through technology. We offer business and technology solutions with deep industry experience in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Insurance, Discrete Manufacturing, Process Manufacturing, Distribution and Food & Beverage.

XcelPros is a Microsoft Gold Partner, Direct Cloud Solutions Provider (CSP) and a Systems Integrator (SI) offering software licensing, implementation and consulting services for Microsoft Dynamics 365, CRM, Microsoft Dynamics AX, Business Intelligence & Analytics (Power BI), SharePoint, Office 365 and Azure (Cloud, IOT, Microsoft Flow amongst many others).

Our mission is to provide integrated technology solutions that amplify impact and empower our customer’s businesses. We believe technology is the key enabler of exponential growth for us and our customers.

Contact XcelPros today to transform your business.

Call us toll-free – 1.855.411.0585 (or) visit www.xcelpros.com

ARTIFICIAL INTELLIGENCE & MACHINE LEARNING

Internet of Things (IoT) Applications Healthcare & Manufacturing

Internet of Things (IoT) Applications Healthcare & Manufacturing 1050 615 Xcelpros Team

Since its inception, IoT has been gaining popularity rapidly in the tech market. Though it has been widely accepted in the consumer level, its application is found to be less in the corporate world. This is because the true potential of Internet of Things is not yet unleashed to many corporate executives.

This infographic gives you a detailed overview of the benefits of IoT application in the healthcare and manufacturing industry. Learn how IoT sensors help businesses monitor and automate the processes and enhance operational efficiency.

To get more information on how IoT will impact your business and customers, talk to an XcelPros expert today. XcelPros will transform your business with IoT Technology solutions.

About XcelPros

XcelPros is a Chicago-based company and delivers transformation through technology. We offer business and technology solutions with deep industry experience in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Insurance, Discrete Manufacturing, Process Manufacturing, Distribution and Food & Beverage.

XcelPros is a Microsoft Gold Partner, Direct Cloud Solutions Provider (CSP) and a Systems Integrator (SI) offering software licensing, implementation and consulting services for Microsoft Dynamics 365, CRM, Microsoft Dynamics AX, Business Intelligence & Analytics (Power BI), SharePoint, Office 365 and Azure (Cloud, IOT, Microsoft Flow amongst many others).

Our mission is to provide integrated technology solutions that amplify impact and empower our customer’s businesses. We believe technology is the key enabler of exponential growth for us and our customers.

Contact XcelPros today to transform your business.

Call us toll-free – 1.855.411.0585 (or) visit www.xcelpros.com

standard costing in pharmaceutical manufacturing

Standard Costing in Pharmaceutical Manufacturing Industry Challenges & Solutions

Standard Costing in Pharmaceutical Manufacturing Industry Challenges & Solutions 1024 600 Xcelpros Team

At a Glance

  • Current state of cost accounting and profitability in current day mid-market pharmaceutical manufacturing
  • What does the C-level really care about?
  • Impact of people and incorrect processes on costs and bottom-line
  • Improper habits of recording data can be a major culprit in building hidden sunk costs
  • 30% of costs go undetected due to poor business practices and the inability to detect them
  • Are you following industry best practices?
  • A simpler solution & insights into daily cost, cost variance and profitability analysis in a pharmaceutical manufacturing company
  • Key takeaways

Where Is the Pharmaceutical Industry Heading?

Mid-market pharmaceutical companies based in the United States will only see a rise in opportunity in the coming years. The projected increase in the industry calls for more streamlined processes within Pharmaceutical Manufacturing and Contract Development and Manufacturing Organizations (CMOs & CDMOs).

Rising R&D costs have been accompanied by more stringent testing requirements. The number of new chemical or biological entities (NCEs and NBEs) launched on the world market increased to 226 in the 2011-2015 period compared with 146 a decade earlier. (IFPMA facts).

R&D costs are on the rise due to stringent regulatory requirements. Tariffs and changing political climate has a huge impact on the dynamics of the pharmaceutical manufacturing industry.

If the pharmaceutical manufacturing companies need to adopt to these changing market dynamics, it is imperative to build sophistication in their methods of costing, profitability analysis and production variance calculation & reporting. Most companies are constantly watching their bottom line to measure profitability and production variance analysis.

This article lays the foundation for standard costing, best practices and its optimization within a Pharmaceutical Batch Manufacturing company. In the subsequent blogs, we will cover best practices within other aspects of costing – weighted average, ABC costing etc.

The Never-Ending Challenges of C-Level Reporting

So, what is my overall profitability for a Product?

This is a major concern for a C-Level executive when there are fast moving raw materials, labor, overheads and other indirect costs involved in identifying the actual cost of a batch in the pharmaceutical manufacturing industry.

As a pharmaceutical company, one of your prime objectives is to comply with the processes set forth in your Standard Operating Procedures (SOPs) to ensure compliance reporting with FDA. In many cases, the focus has been to stay compliant while losing sight of key indicators that drive profitability and organizational goals.

In continuous production and batch manufacturing processes, the multitude of activities involved brings about a need for costing that ties to each activity. There are always many moving parts in identifying the right cost breakdown structure. When there is a need to provide key analytics for stakeholder reporting, it is imperative to measure true costs.

What matters to the CFO?

A CFO, however, is not just looking at this unilaterally. Instead, a broader view is what matters which includes the details in determining the actual cost and how the variance came about. In reality, the manufacturing process is heavily intertwined with product costing and therefore the need to highlight many different elements that aid in standard cost determination and variance reporting. Production variance reporting is however just a subset of the overall cost breakdown structure in bottom-line reporting.

Depending on the reporting structure, there may be a preference of backflush costing methods to delay costing until an item is manufactured. It could be a reporting nightmare if a proper method is not leveraged in deriving analytics and production performance metrics. Many times, people resort to traditional means to analyze these costs and variances using excel spreadsheets. Analyzing costs can be extremely challenging if your system does not keep a track of perpetual costs until the completion of a production job.

Does an extremely complicated cost excel sheet with COMPLEX macros and v-lookups ring a bell?

Data Capture Discipline & Lost Visibility

Certain processes in longer production campaigns, specifically in continuous processing, can span across days, weeks or sometimes even months. Recording actual numbers based on material and resource consumption to report standards vs actuals can get very tedious. Enforcing process discipline can alleviate some of these pains.

In real life, this can take hours of data crunching to gain clarity. Now, add to it a statistic of rework batches or lots which adds significant complexity to the overall calculation. What is not easily visible is the additional cost of starting material, line clearance, labor and machine hours that get compounded to the original batch cost.

This statistic makes you wonder where your company ranks in performance. Human capital, machine or work center hours need to be planned across multiple production jobs to better understand how to source and schedule labor as well as allocate machines to each production run. As material is being processed, it becomes essential to understand the cost of each operation in process that would further feed numbers into each production job.

People & Processes in Pharmaceutical Production – Impact on Costs & Bottom-Line

A large amount of time and resources are spent in an attempt to recover from inefficiencies caused due to improper procedures followed in day-to-day operations. This could be due to lack of proper KPIs, processes or even methods to track efficiencies.

  • The Production planner cares less about cost and more about possible capacity roadblocks with additional material and resource requirements that could in-turn lead to unplanned variances.
  • Warehouse operators need to record consumption based on feedback from Quality Control (QC) on when to proceed with the job, how much to consume on the batch and how many hours were already recorded. But do the operators have systems and processes in place to capture critical data real-time?
  • For the sake of convenience, operators tend not to record data during operations and instead wait till the end of the production run. It would be ideal to capture this data in real-time, directly in the ERP system. If not, recording on paper would do.
  • Based on a proper set of batch instructions and results of WIP testing performed by Quality Control (QC) personnel, the production manager is always looking for ways to substitute materials to meet timelines, quality standards, batch potency and capture relevant batch information accurately.
  • Understanding how expensive the total batch record is going to be helps proactively plan for all the operational costs involved in producing a batch mainly for your ‘A’ items.

Improper habits of recording data is a major culprit in the accumulation of hidden sunk costs

Batch Manufacturing – An Example from Real Life

In long running batch manufacturing processes, there may sometimes be a need to test the PH value of the mixture / API every hour. Depending on the PH values and WIP tests, operators add additional compounds to achieve the desired PH. These additions are often not captured in the system nor on paper. These compounds / chemicals are consumed from Inventory without even tracking their use. Considering that Inventory is now out of sync and inaccurate, the controller may have to categorize these as overheads thereby losing sight of costs when they occur. Most of us have experienced such processes in real-life.

Now, what are a few practical solutions to minimize such practices?

  • Having an industrial grade tablet or mobile device on the shopfloor to aid in data capture real-time is one possibility,
  • IoT is very relevant for today’s markets to track start, stop and inputs within each operation
  • Mobile supply chain gun or a handheld scanner is another input method that can aid in capturing data on the shopfloor
  • Putting systems in place that are easy to follow and not over complicated is another one
  • An ERP system that will flag the deviation when it occurs and not after the fact
  • Checks & balances involving electronic signatures that can help stop incorrect practices and the list goes on

High-Level Production Process

Standard Cost Calculation

In a sophisticated mixed mode manufacturing ERP system, where both process manufacturing and discrete processes occur within the same operation facility, the standard cost is derived from standards set on the Formula or BOM depending on a combination of the following:

  • Batch being manufactured
  • What is packaged into containers
  • Hours spent on each operation
  • Standard resource costs per unit price

Calculated cost on a Formula or a BOM is derived from ‘individual raw material / intermediate costs’ just as the cost of operations are derived from ‘resources and machines’ assigned to the Route.

It is important to set the standards correctly based on past history to proactively manage production runs and keep a close tab on production costing.

For any C-level who is tracking profitability or for a Plant Manager whose bonus depends on higher margins, a better gauge of where they are headed from a numbers standpoint helps them proactively fix redundant spend resulting from operational and resource inefficiencies.

Estimation of Production – What Should Happen?

  • First step is to plan the size of the batch that needs to be produced. Your ERP system should automatically scale from the standard batch size and identify standard cost.
  • This information already provides an insight on subsequent decisions to be made about the batch such as ‘identifying the right margin’ and ‘set an appropriate selling price’ on customer quotes / sales orders.
  • As production jobs are released to the production floor, operators allocate all appropriate raw materials for consumption marking those specific raw material lots as unavailable for other batches.
  • Allocating raw material lots / resources correctly and recording data in a modern Pharmaceutical ERP software can control unnecessary mistakes and coverups providing a true picture of product costs.

The standard cost rollup for a manufactured product comprises of Direct Material, Direct Labor, Overheads and Indirect costs.

Following actual raw material consumption, there is a tendency of not wanting to record point-in-time information due to a fear of making mistakes or to better state it – wanting a flexibility of making mistakes and not keeping a track of what was altered from standards, making variances a bit of an enigma.

Consumption Process

  • During raw material consumption, physical inventory is relieved by directly booking material costs to Work-In-Process (WIP). If we were to assume that the only changes on a production run is to the overall labor and machine time on operations, then all standards relieved from WIP would book production and quantity variances based on standard cost when the lot is closed out.

Multi-Tier Formula / BOM

  • A much complicated scenario occurs when there is a multi-tier formula where intermediates are produced and consumed into the next tier with additional flavor of substituting raw materials and continuing until the final finished product is produced. There may be times where yields are properly known before they move on to the next step and in some cases the shop floor goes by standards and records adjustments to material and operation after the final finished lot is yielded and finally closing out all tiers in the multi-tiered BOM/ Formula.
  • It could easily become a complicated cost calculation with all tiers involved – their costs, variances and the costs being fed into the final finished product along with the final set of variances.

Key Takeaways – Move Forward Plan

  • With proper methods and good industry standards it is possible to streamline operations to control these variances from being unpredictable.
  • The first step would be to stop and understand what your current manufacturing practices are and what the downstream impact is on costing.
  • It is imperative to identify what competitors with an outlook of outperforming the market are doing to create operational efficiencies.
  • Once that is established, it would be important to properly identify the correct methodology to implement changes in business practices which bring about a noticeable change in productivity and worker efficiency.
  • Sophisticated ERP systems made for the process industry offer deep functionality that provides different types of production cost buckets including quantity, substitution and lot variances.
  • You will benefit from a sophisticated analytics and business intelligence tool embedded within your Finance, Operations and Sales productivity systems with necessary insights to grow and stay ahead of the market.

This article was written by Bindu Chunduru, Head of Delivery & Solutions Architect at XcelPros. She has 20 years of hands-on experience in Finance, Costing and Manufacturing functions in conjunction with industry leading ERP systems like SAP, Microsoft Dynamics and building industry specific products. She has been an advocate of transformation through technology and a change agent helping companies grow by improving business processes & practices. If you have any questions or need help in anyway, you can reach out to the author at bindu@xcelpros.com.

About XcelPros

XcelPros is a Chicago-based company and delivers transformation through technology. We offer business and technology solutions with deep industry experience in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Insurance, Discrete Manufacturing, Process Manufacturing, Distribution and Food & Beverage.

XcelPros is a Microsoft Gold Partner, Direct Cloud Solutions Provider (CSP) and a Systems Integrator (SI) offering software licensing, implementation and consulting services for Microsoft Dynamics 365, CRM, Microsoft Dynamics AX, Business Intelligence & Analytics (Power BI), SharePoint, Office 365 and Azure (Cloud, IOT, Microsoft Flow amongst many others).

Our mission is to provide integrated technology solutions that amplify impact and empower our customer’s businesses. We believe technology is the key enabler of exponential growth for us and our customers.

Contact XcelPros today to transform your business.

Call us toll-free – 1.855.411.0585 (or) visit www.xcelpros.com