Roche Company’s Operations Management

Introduction

Operations management (OM) is central to the overall organisational strategy. It focuses on attaining efficiency and competitive gains and maximising profits in the functional areas of product/service development, operations and marketing. It aims to improve practices across departments through effective conversion of inputs (materials) into outputs (products/services) (Schroeder, Goldstein & Rungtusanatham, 2011).

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The global operations management case selected for this report is Roche Diagnostics, a pioneer Swiss-based biotech firm that sells pharmaceuticals, in-vitro diagnostic tools and analytical systems to labs and hospitals in over 100 countries, including Oman. The corporation is also active in oncology, cardiovascular and metabolic disease treatment, women’s health and diabetes management (Medtrack, 2018). It is a strategic business unit (SBU) under The Roche Group (Roche 2013). This report examines three of Roche’s OM decision areas, compares and contrasts the organisation with another firm using the 4Vs of operations and assesses ways to improve its operational performance.

Relevant OM Decision Areas

Quality

Roche’s customers (labs, doctors and hospitals) demand high-quality products, and therefore, the firm’s OM decisions on quality must be precise and timely. The project manager should prescribe standards and operating processes to meet customer quality expectations (Buerhing, 2012). The goal is to produce error-free goods or services and optimise key product attributes of functionality, appearance, reliability, durability and recovery through a coordinated input-transformation-output process (James, 2011).

Roche, just like other manufacturers of diagnostic tools, focuses on delivering quality at a lower cost. Local quality teams are involved in quality assurance. Their primary tasks include in-house development of standards, risk assessment, rigorous control and testing and conducting internal audits in liaison with health authorities (Hamilton, Byatt & Hodgkinson, 2018). The process ensures efficiency in production and quality outcomes.

Given that pricing and safety standards are prescribed by regulators, maintaining quality at a lower cost can be challenging for medical devices manufacturers. The innovation, design and production of new medical devices can be quite costly. The firm’s quality assurance team has to consider ways to reduce expenses to attain lower costs and high quality (Roche, 2019b). The strategies include using outsourced plants in low-cost countries, investment in automation systems and data-driven diagnostics and adopting customisation options to ensure personalised healthcare (Russell, 2018).

Roche also considers cultural gaps and the competence of external manufacturers before contracting them. It evaluates the partner’s compliance with regulatory requirements and conducts facility inspection to guarantee quality (Lenhoff, 2018). Regular checking and optimisation of Roche’s internal quality systems can help further strengthen the firm’s facility and product safety.

Inventory Management

This OM area concerns decisions on the level of inventory (raw materials and products) to maintain to meet customer demand without disrupting production. Roche is continually under pressure to deliver on time and meet demand in its business units – pharmaceuticals and diagnostics. Through its Inventory Solutions, the firm can “optimise supply chain processes and provide real-time management insights” for core labs (Roche, 2018, para. 9).

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Thus, the application allows Roche and its clients to determine impending shortages and initiate orders from its suppliers consistent with the just in time model. The strategy improves the return on investment by decreasing in-process inventory and related carrying costs (Srinivasan et al., 2009). Roche’s Inventory Solutions utilises user-determined min-max levels and order rates to optimise inventory on its diagnostic testing platforms.

Roche’s inventory management is also enhanced by improved connectivity. Through its integrated patient testing technologies, the firm can respond to changing consumption patterns. Its automation systems support the integration of point-of-care molecular tests and PCR assays (Lenhoff, 2018). In this way, Roche can work with laboratories to implement diagnostic tests. The integration leads to a rapid turnaround, as carrying out a testing-access readiness and setting up the equipment can take only 4-9 months (Roche, 2019a). Roche, through its lab workflow consulting, ensures that labs obtain timely validated tests to make correct decisions for their patients. A recommended inventory management strategy is health information management for real-time determination of patient testing demand.

Process Design

A process design centres on products, not services. OM decisions on this area should focus on the type of technology required, staffing needs, capacity, quality standards and cost (James, 2011). Direct involvement of customers can help decide on these issues. Roche employees over 94,000 people globally (including researchers) and invests a fifth of its annual sales revenue in the planning, build-up, roll-out and conclusion of research and development (R&D) projects (Heppelmann and Porter, 2016).

The innovative power of Roche’s R&D is reflected in the recent FDA-approval of new drugs like Alecensa. Roche also decided to partner with drug companies like Eli Lilly and Heska to develop “companion and complementary diagnostic tests for drugs for cancer” (Pammolli, Magazzino and Riccaboni, 2011, p.431). The goal was to consolidate its leadership position in this area and share costs and resources.

Roche has also decided to focus on emerging therapeutic areas. It has invested in research on neurological conditions like Alzheimer’s disease and autistic disorders (Diggelmann, 2016). In diagnostics, it has embarked on creating an integrated core lab offering different automated tests. On quality, all Roche plants are required to adhere to a set of high-quality standards that include facility and occupational safety (Chressanthis, Eisenstein and Barbro, 2015). The staff must work towards achieving the set quality goals for its products. Further, a technical quality assurance team checks and approves all pharmaceuticals, including clinical trial compounds. On capacity design, Roche should invest in promoting local capabilities through the training of healthcare personnel and local regulators.

4 Vs of Operations

OM processes turn inputs into outputs through the 4Vs. Roche’s operations are organised on a high-volume dimension. It annual product launches are 3-5 brands distributed to 100 countries. In contrast, its main rival, Abbott, only targets specific labs in each segment (Appendix A). Roche’s automated systems support higher repeatability, systemisation and specialisation than those of Abbott do. On the variety dimension, since 2013, Roche received 22 FDA-approvals for every 7.4 months compared to Abbott’s 19 per 2 years (Cairns, 2018).

It collaborates with other companies, for example, Eli Lily, to speed up clinical trials and bring diverse products into the market. Roche supplies a broad range of flexible products compared to Abbott’s due to its superior R&D function. It has also diversified into other therapeutic areas, for example, oncology, to fulfil unmet needs and variation in demand. Accelerated product development and launch means that Roche has higher visibility than Abbott.

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Improving Operational Performance in Roche

From the analysis, Roche can conduct testing-access readiness and set up the lab equipment within months. This operational process can be improved through big data analytics for more accurate planning and knowledge and quality management (IPMA, 2017). According to Slack, Brandon-Jones and Johnston (2015), a greater focus on capacity planning and control to meet higher order rate (pharmaceuticals and diagnostics) during outbreaks. Building the capabilities of local hospitals and professionals through training can help support Roche’s operational objectives.

Roche’s inventory distribution should also be streamlined. Although the firm has implemented automated systems and integrated workflow processes to allow clients to track the progress of tests and orders, more vertical integration is suggested between the company and its partners. The approach will enable Roche to streamline the supply chain from the manufacturing of companion diagnostics to distribution and logistics to the lab or hospital (Grossman and Cotton 2004; Guan and Rehme, 2012). Vertical integration will enhance local user support, ensure faster solutions to customer problems and build capacity, especially in challenging markets. It will also decrease supply chain costs.

Focusing on human resources (HR) can also result in improved operational performance for Roche. Currently, the organisation’s global staff population is 94,000 (Roche, 2018). Its talented team of researcher account for Roche’s superior R&D power and a higher number of FDA-approvals. Applying the critical path method to making the staff to be in sync and meet targets can result in competitive gains for Roche (CPM Scheduling, 2019). A Gantt chart can also help in the scheduling of tasks for optimal productivity (Tran, 2015). Given the differences in regulatory requirements for medicines and diagnostic tools in different countries, recruiting and training experienced, local talent pool can help the corporation develop designs tailored for specific markets.

To add to its OM performance in testing, Roche should collaborate with genetics and genomics companies. Pharmacogenomics can be a crucial driver of growth for the firm. Potential assays for disorder predisposition and personalised drug therapy present an opportunity for Roche. The collaboration will accelerate the development of DNA chips for identifying risk factors to support disease prevention.

Conclusion

Roche’s OM area of quality includes decisions on high-quality products at lower costs through outsourcing, automation and collaboration. Its inventory management processes involves an application, Inventory Solutions, which supports demand forecast and planning. Its process design considers innovative technologies, talented staff to lead its R&D efforts and strengthened quality assurance. The analysis of 4Vs of operations indicates that Roche is a high-volume, variety, variation in demand and visibility brand. Its operational performance can be improved further through better demand forecast, vertical integration with labs and human resources strategy. Additionally, collaboration with genomic companies can enhance Roche’s competitive position in pharmacogenomics.

Reference List

Buerhing, S. (2012) PRINCE2 theme: Quality. Web.

Cairns, E. (2018) Roche leaves Abbott in the dust when it comes to US approval times. Web.

Chressanthis, G. A., Eisenstein, E. M., & Barbro, P. A. (2015) What makes more, better? An exploratory study on the effects of firm-level commercial operations attributes on pharmaceutical business performance. Journal of Medical Marketing: Device, Diagnostic and Pharmaceutical Marketing, 15(1), 10-17.

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CPM Scheduling. (2019) Critical path method scheduling. Web.

Diggelmann, R. (2016) Committed to innovation and growth. Web.

Grossman, S. H., & Cotton, R. D. (2004) Roche group’s sales organization models long‐term sales force effectiveness. Global Business and Organizational Excellence, 24(1), 39-45.

Guan, W., & Rehme, F. (2012) Vertical integration in supply chains: Driving forces and consequences for manufacturer’s downstream integration. Supply Chain Management: An International Journal, 17(2), 187-201.

Hamilton, G., Byatt, G., & Hodgkinson, J. (2018) Risk management and project management go hand in hand. Web.

Heppelmann, J. E., & Porter, M. E. (2016) The four phases of project management. Web.

IPMA. (2017) What role does big data have in shaping future of project management? (Part A). Web.

James, T. (2011) Operations Strategy, Frederiksberg: Ventus Publishing ApS.

Lenhoff, A. (2018) Roche Diagnostics develops healthcare solutions with a focus on personalized healthcare. Web.

Pammolli, F., Magazzino, L., & Riccaboni, M. (2011) The productivity crisis in pharmaceutical R&D. Nature Reviews Drug Discovery, 10(6), 428–438.

Roche. (2013) Roche Middle East. Web.

Roche. (2018) Roche in Brief 2017, Basel: F. Hoffmann-La Roche Ltd.

Roche. (2019a) Inside Roche. Web.

Roche. (2019b) Quality and compliance. Web.

Russell, J. (2018) Roche using data-driven diagnostic tools to reshape patient care. Web.

Schroeder, G. R., Goldstein, M. S., & Rungtusanatham, J. M. (2011) Operations Management: Contemporary Concepts and Cases, New York: McGraw-Hill.

Slack, N., Brandon-Jones, A., & Johnston, R. (2015) Operations Management, London: Pearson Education.

Srinivasan, S., Pauwels, K., Solva-Risso, J., & Hanssens, D. M. (2009) Product innovations, advertising, and stock returns, Journal of Marketing, 73(1), 24–43.

Tran, L. (2015) The importance of the Gantt chart and the critical path for project management. Web.

Appendix A: A Comparison of the Companies’ 4 V’s

Roche Diagnostics Abbott Laboratories
Volume Roche launches 3-5 innovative pharmaceuticals/diagnostics annually for core labs, hospitals and doctors in over 100 countries. Thus, the firm pursues a high-volume production strategy to meet demand. It has a high degree of repeatability, systemisation and specialisation. Abbott’s products are intended for doctors and labs in specific countries. Thus, the unit volume produced is low. It has a less repeatability and systemisation.
Variety Roche has technological expertise; thus, it can tailor products to fulfil unmet customer needs. Investment in R&D gives Roche in-house flexibility to design new drugs at increased turnaround times. It receives the highest FDA-approvals, at 22 in 7.4 months. It also uses outsourced plants or joint ventures (Novation), which require complex planning but have OM benefits. Variety is low at Abbott. Its R&D power is limited, hence, the discontinuation of the LCx product lines. Since 2013, it received only 19 approvals in two years. Abbott has also experienced production challenges resulting in unprofitable segments.
Variation in demand Roche supplies a larger number of new pharmaceuticals and diagnostics than rivals. The firm is flexible, and through supply chain integration, it is able to direct its R&D efforts to therapeutic areas in demand (e.g., oncology). It also had a high distribution capacity due to collaborations and outlets in over 100 countries. Continuous innovation ensures a high variety of products to meet changing healthcare needs of patients. Abbott’s low R&D power means that it offers routine and predictable products/services that are less responsive to demand changes.
Visibility Customers often have a short waiting tolerance. Roche, through collaborations, has reduced the duration from testing-access readiness to setting up the equipment to only 4-9 months. Its automated testing platforms allows clients to track the progress of the tests, increasing customer contact and satisfaction. Abbott also has a high visibility in all its segments. However, its low FDA-approvals introduces a time lag between production and sale.
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