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  INVENTORY MANAGEMENT IN A PHARMACEUTICAL COMPANY: MINIMIZING DISCARD PRACTICES By XIAOJUN WANG B.Eng., Electrical Engineering National University of Singapore, 2009 MASSACHUSETTS INSTITUTEOF TECHNOLOGY  OV 0 4 2 LIBRARIES ARCHIVESSUBMITTED TO THE DEPARTMENT OF MECHANICAL ENGINEERING IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF ENGINEERING IN MANUFACTURING AT THEMASSACHUSETTS INSTITUTE OF TECHNOLOGY SEPTEMBER 2010 ©2010 Massachusetts Institute of Technology. All rights reserved. Signature of the Author:, Department of Mechanical Engineering Aug 17, 2010 Certified by: 0- Stanley B. GershwinSenior Research Scientist in Department of Mechanical Engineering  y SupervisorAccepted by: David E. Hardt Ralph E. and Eloise F. Cross Professor of Mechanical Engineering Chairman, Department Committee for Graduate Students - I /-) r7, A  INVENTORY MANAGEMENT IN A PHARMACEUTICAL COMPANY: MINIMIZING DISCARD PRACTICES By XIAOJUN WANG Submitted to the Department of Mechanical Engineering on Aug 17, 2010 in partial fulfillment of the requirement for the Degree of Master of Engineering in Manufacturing ABSTRACT Pharmaceutical company SPM has over 400 cases of inventory discards over the past five yearswhich constitute a significant operating cost. Due to the complexity and randomness of each case, the root causes that result in inventory discards are not identified by the management, thereby hindering SPM from coming up with effective discard minimization practices. This thesis investigates the discard reasons and analyzes the severity of each cause. Raw material expiration is dentified as one of the primary discard causes. High raw material inventory level is resulted from the current inadequate inventory management practices in SPM. A raw material inventory management procedure with appropriate inventory grouping strategies incorporating the shelf life is developed in order to help SPM reduce its waste in material expiration. Based on the study of demand information and forecast accuracy, different inventory models are applied to classified inventory groups to determine the amount of inventory to be ordered and kept as safety stock. The study finds that the new procedure reduces the average inventory costs of the items studied by 43%.Thesis Supervisor: Stanley B. Gershwin Title: Senior Research Scientist at the MIT department of Mechanical Engineering Page | 2  Acknowledgement First and foremost, the author would like to express his sincere appreciation to Dr. Stanley Gershwin, the supervisor of this thesis, for his continuous guidance and invaluable advice offered throughout the duration of the thesis. The author's heartily gratitude goes to Company SPM for sponsoring this internship. In particular, the author wishes to thank his company supervisor, Mr. James Killory, for initiating the project and sparing time to share great insights with the author. Many thanks to thefriendly and helpful colleagues in Company SPM, especially the material management department led by Mr. Danny Tan, for their constant support in his thesis project. The author would also like to thank Dr. Brian Anthony for his effort in securing this internship opportunity with the company. Last but not least, the author would like to thank his teammates from the manufacturing program, for accompanying him in this great learning journey. Page | 3  Table of Contents Chapter 1 Introduction ............................................................................................................. 9 1. 1 Com pany Background ....................................................................................................... 9 1.1.1 M erger of Com pany SP and Com pany M ................................................................... 9 1.2 M anufacturing Facilities................................................................................................... 10 1.3 Com pany Products .............................................................................................................. 11 1.4 API M anufacturing Process .............................................................................................. 12 1.5 Com pany Structure and Operations ............................................................................... 15 1.5.1 Planning Function .................................................................................................... 15 1.5.2 M aterial M anagem ent Function ................................................................................ 16 1.5.3 Quality Function ....................................................................................................... 16 1.5.4 Continuous Im provem ent Function......................................................................... 17 1.5.5 Cross Function Investigation Board .......................................................................... 17 1.6 Problem Statem ent .......................................................................................................... 18 1.7 Project Objective................................................................................................................. 18 1.8 Project Scope and Focus .................................................................................................. 19 1.9 Problem s in Current Raw M aterial M anagem ent........................................................... 19 1.9.1 Difficulty in Procurem ent Planning........................................................................... 19 1.9.2 Lack of Efficiency in Raw M aterial M anagem ent Policy .......................................... 20 1.9.3 Lim itation of SAP Usage ........................................................................................... 20 1.10 Organization of Thesis .................................................................................................. 21 Chapter 2 Literature Review ....................................................................................................... 22 2.1 Risks in Pharmaceutical Inventory Manufacturing and Management ............................ 22 2.1.1 Challenges in Supply Chain Planning ........................................................................ 22 2.1.2 Challenges in Operations ......................................................................................... 22 2.2 Current Practice in Discard M nim zation ........................................................................ 23 2.2.1 Prevention of Inventory Expiration .......................................................................... 23 2.2.2 Operation M anagem ent for Quality Control .......................................................... 24 Chapter 3 Prelim inary Analysis .................................................................................................. 25 Page | 4
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