Wednesday, September 18, 2013

Manufacturing excellence on board agenda - Ranbaxy, a case in hand

As reported in the Business Standard in its September 18, 2013, issue, The US Food and Drug Administration (FDA) has extended the ongoing consent degree with the company for its Paonta Sahib (Himachal) and Dewas (Madhaya Pradesh) units to its third and newly commissioned manufacturing facility at Mohali (close to Chandigarh),which had attracted an import alert from the regulator on Friday. As a result  three major units of Ranbaxy are now barred from supplying drugs to the US. Ranbaxy gets more than 40 per cent sales from that country.The decisions of the FDA will hurt the company hard and shareholders will lose value.

Japan's Daiichi Sankyo owns 63.5 percent shares of Ranbaxy. Daiichi acquired Ranbaxy in June 2008. Thus, Ranbaxy is being controlled by the Japanese company for  five years now. The problem of failure to compply with good manufacturing standards could not be sorted out by the new owner during this period. This shows how deep rooted is the culture of accepting small deviations from the standard operationg procedures (SOP). If that approach is prevalent in an industry which is under the surveillance of a strict regulator, it may not be incorrect to assume that such deviations are not uncommon in other manufacturing companies.

Penalty and loss of contribution from lost sales are not the only costs of  deviating from SOP. Deviations from SOP always increases the cost of operations due to increase in waste in many forms. Companies, often do not calculate the same and allow such deviations to be reported and settled at the lower level of management. This 'chalta hai' ( it is OK) approch costs India dear in terms of low productivity of resources and in many other ways. For example, US ban on the import of drug from three facilities of Ranbaxy is not only a loss to the company but a loss to the country in terms of lost opprtunity to earn foreign exchange, lower utilisation of productive capacity and incresing concerns about quality of India's products.

This 'chalta hai' approach might become a major road block in achieving the mission of achieving manufacturing excellence even when India will create right infrastructure and manufactiring facilities.

Board of directors should own up the responsibility to change the ;chalta hai' culture at the shop floor. Board members should look back to see how many times 'achieving manufacturing excellence' was on the Board agenda and how many hours were spent on this issue in the Board meetings.

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