MIdhin Final Dissertation 11111

A CASE STUDY OF RANBAXYINDIA PVT LTD
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ABSTRACT
Indian generics pharmaceutical industry is witnessing unprecedented turbulence of globalization as they try to expand their bases internationally. The new challenges presented to them force the companies to rethink at their supply chain management strategies. In this backdrop, this paper analyses the current supply chain management challenges faced by Ranbaxy, the biggest player in the Indian generics pharmaceutical industry. This paper finds that global demand fluctuations and the regulatory changes are the biggest supply chain management challenges faced by Ranbaxy. Pacer growth and acquisitions added a number of new manufacturing units to Ranbaxys portfolio and this increased the sourcing challenges of Ranbaxy. Ranbaxys global manufacturing units are operating sub-optimally because of these challenges. Massive adoption of technology is the solution Ranbaxy adopted to improve the efficiency of its supply chain. Backed by the technology, Ranbaxy rolled out two major initiatives on its systems side and the processes side which saw varying degrees of success. E-Sourcing, globalized procurement management practices, smaller batch size production initiatives and CRUSOE Creatively Releasing and Unleashing Substantial Operational Efficiencies became the backbone of Ranbaxys answer to the challenges it faced. This paper finds that, while the challenges faced by Ranbaxy remained same, Ranbaxy is able to address them to a reasonable level of success. CRUSOE became a turning point for Ranbaxy as the initiative led to large scale cost reduction in its operations.
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ACKNOWLEDGEMENT
This dissertation might not have been accompanied so easily had I lacked the assistance of several people. I am grateful to my tutor Helen Benton .She provides me a valuable assistance and helped me through the project. Moreover, I must thank my parents and my dearest friends, who were very helpful in all the way to complete this research. I finally want to thank my sisters for their support and encouragement.
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Table of Contents
Abstract . .............................................................................................. Error! Bookmark not defined. Acknowledgements ............................................................................... Error! Bookmark not defined. Introduction ............................................................................................................................................. 5 Importance of the study ...................................................................................................................... 6 Research problem and its significance ................................................................................................ 7 Industry of research and its significance ............................................................................................. 9 Objectives of the research ..................................................................................................................... 11 Background information of industry of research .................................................................................. 12 Research questions ................................................................................................................................ 13 Literature Review and theoretical background ..................................................................................... 14 Introduction to supply chain management ........................................................................................ 14 Supply chain elements ...................................................................................................................... 14 Core and extended supply chain functions........................................................................................ 16 Supply chain planning and execution ............................................................................................... 17 Role of technologies in Supply Chain Management ......................................................................... 19 ERP and SCM ................................................................................................................................... 20 e-SCM as a way to avoid Bull Whip effect ...................................................................................... 22 Integration of SCM and ERP ............................................................................................................ 23 Radio Frequency Identification technology (RFID) ......................................................................... 25 RFID systems in pharmaceutical industry ........................................................................................ 27 Supply chain in pharmaceutical industry .......................................................................................... 27 Importance of supply chain in pharmaceutical industry ................................................................... 28 Components of a pharmaceutical supply chain ................................................................................. 29 Processes in the pharmaceutical supply chain .................................................................................. 30 3 | ANGLIA RUSKIN UNIVERSITY
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Pipeline and development management ............................................................................................ 31 Capacity planning ............................................................................................................................. 32 Research methodology and hypothesis development ........................................................................... 33 Data collection, analysis and presentation ............................................................................................ 40 Components of pharmaceutical industry manufacturing and distribution chain ............................... 40 Spending distribution of generics pharmaceutical manufacturing companies .................................. 40 Overview of supply chain management initiatives in the industry ................................................... 41 Supply chain management approaches of Ranbaxy .......................................................................... 43 Interview with Girish Gupta, Director (Supply Chain) , Ranbaxy.................................................... 60 Time line of research study ................................................................................................................... 48 Limitations of the research .................................................................................................................... 49
Conclusions and recommendations ....................................................................................................... 50 References ............................................................................................................................................. 55 Bibliography ......................................................................................................................................... 59
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Chapter 1
Introduction
Globalization and rapid changes in the global business climate have increasingly made the Operations management challenges of pharmaceutical manufacturers more and more complex. As the worldwide business climate has grown increasingly turbulent, with rapid market consolidation, governmental regulations, protectionism, growing labour issues and financial pressures, organizations are forced to improve their response to varying market conditions swiftly and sufficiently. The complex nature of business market conditions are putting stress on pharmaceutical manufacturers to enhance their supply chain management processes in order to respond quickly to a market opportunity. Indian generic pharmaceutical manufacturers have been struggling for decades to make their presence felt in the international market. With a shaken foot placed in many developed countries, Indian pharmaceutical manufacturers now have to aggressively throw themselves at every opportunity available. However, the companies are faced with rampant demand fluctuations and critical supply issues that make their operations management more challenging than ever. Previously focused more on product than process and insulated from some of the pressures felt by other more globalized industries, the Indian drug industry has been lagging in terms of IT utilization and operations management. The environmental changes are now putting Indian pharmaceutical companies in a tough spot as they move to embrace global operational management practices that are employed successful in other industries.
A CASE STUDY OF RANBAXYINDIA PVT LTD Importance of the study
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Supply chain management in the pharmaceutical industry is a major research topic often undertaken as a part of process operations and management. However, most of the research in this area is undertaken on inventory and distribution planning, capacity planning, scheduling of operations, design of processes etc. Very rarely is the research focusing on the issues directly addressing the pharmaceutical industries been undertaken. However, there is a pressing need in serious research in this area owing to many reasons. Pharmaceutical industries are facing a curious problem of demand management. Global demands and peculiar operational environment makes the pharmaceutical industry very complex compared to its peers. The industry is in a major need of sophisticated supply chain optimization techniques. At the supply chain design stage, the industry is facing a particular problem arising out of the uncertainty of clinical tests and regulatory changes. The industry is faced with uncertainty in demand is challenging the companies in attaining efficient capacity utilization and future capacity planning. The ability of the company to locate important supply chain notes in tax havens and lesser regulatory regimes are equally important and the optimized trading and transfer price structures are becoming important part of the problem.
In the operational stage, Ranbaxy and other generic pharmaceutical manufacturers are troubled with the challenge of responsiveness. A typical pharmaceutical product involves multiple stages Primary Active Ingredient Production that involves multi-stage chemical synthesis and a secondary formulation Production stage. Both these stages involve long cycle times and in order to attain economies of scale, sufficient production numbers and longer schedules needs to be adopted. In order to survive and the provide quick responses to changing market demands, supply chain bottlenecking and decoupling strategies together with coordinated inventory management are crucial.
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The study is important in relevance to the industry also. Indian pharmaceutical manufacturing companies have suddenly attained global attention because of the capability to provide cheaper generic drugs. However, in order to sustain the global competition, these companies have to rapidly adopt global best practices and scale up, all the while keeping themselves adaptive and nimble to the changes happening around them. The challenges are fresh and unique and in order to address them, a fresh look at established practices needs to be employed. This study tries to address this gap.
Research problem and its significance
The research tries to address the specific supply chain problems faced by Ranbaxy Laboratories, India. In order to put this paper in right context, it is important to understand the life-cycle of a pharmaceutical product developed by Ranbaxy. Ranbaxy, being a generics drug manufacturer, acquires technology to make potential off-patent drugs or license potential new drugs created by other major pharmaceutical companies. The company then does research on finding better components and ingredients that would effectively reduce the cost of creation of the new drug. The drug thus created has to undergo a limited field test including its ability to alleviate symptoms and disease removal. Once the drug has proved its efficiency, the drug will undergo the regulatory approval before it goes into the manufacturing processes. Supply chain management challenges in Ranbaxy
Sourcing problems
Traditionally, Ranbaxy Laboratories and its manufacturing units across various location employed local sourcing strategies. Ranbaxy manufacturing locations in New Jersey, United States and Sao Paulo, Brazil has similar sourcing structures while Nigeria, Romania, India and Singapore manufacturing facilities used their own local sourcing structures. In all these locations, compounds required for manufacturing were sourced through the primary local sourcing channels. The direct materials sourced through the listed vendors accounts to 72% of Ranbaxys total cost of a drug manufactured. Because of this very reason, Ranbaxy has been very rigid on the vendor selection and once the vendor is selected and approved, they will remain as the
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primary source for procurement in that location. However, owing to the new market requirements of change over competence and smaller batch production and rapid identification of non-traditional components has put this strategy in question. Ranbaxy found a need to rapidly change the production schedule to include a new drug into the market quicker than early expected. They also found that sourcing a newly developed component through the traditional channel is taking longer than expected time. Hence more than often, Ranbaxy started relying on unlisted vendors for quick sourcing of the components. As the total number of projects taken by the teams increased, this form of sourcing strategy puts the projects under strain and caused delays in completing the project. The situation warranted Ranbaxy to sign short-term contracts with new vendors and sometimes even spot buying certain critical compounds. This dramatically increased the cost of manufacturing of the drugs.
Supply side challenges
Ranbaxys supply side challenges can be summarized by visualizing the following operational parameters of the company.
The company runs 11 highly backward integrated Dosage Form (Generic drugs) manufacturing units and almost the similar number of Active Pharmaceutical Ingredients (Advanced drugs) factories in the various locations in the world.
The company works with more than 40 contract manufacturers in developing Dosage Form drugs
The company depends on more than 30 third party suppliers The manufacturing involves approximately 1000 SKUs of raw materials Packaging of the drug various according the regional requirements and the company uses more than 15000 packaging materials.
Demand side challenges
Similar to the supply side challenges, the company also faces major complexity in the demand side as well. Ranbaxy has customers in 125 different countries located in 5 continents in the world. Ranbaxy follows 6 distribution models and has a total of 7000 SKUs of drugs. Every other day, Ranbaxy introduces a new drug that is introduced to multiple markets simultaneously
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Global manufacturing presence
Ranbaxy followed a string of acquisitions in the recent past and followed an aggressive growth approach in the international market. This left the company with a 25 operational plants in 11 countries with varying capacities and competencies. Among these 25 plants, some of them were operated by contract manufactures, a few of them are operated as regional plants; a few of them are operated as global plants that delivered drugs to multiple locations in the world. All these plants operated at varying degrees of autonomy and it became apparent to the management that there needs to be synergies across various plants to best utilize the resources. This paper will consider the above important issues in supply chain design and operations of Ranbaxy. The paper will draw important concepts from the literature and compare and contrast with our observations and finding from our research. The main problems will be reviewed as will the literature on the topics related. We will also look at possible strategies taken by Ranbaxy and evaluate that in the light of the literature.
Industry of research and its significance

Indian pharmaceutical industry is second largest in the world in terms of volume. The industry has shown a significant growth in the last decade and is currently growing at 10% per year. The Indian pharmaceutical industry was virtual nonexistent till the 1960s. India was relying on imported drugs till then and seeing the need for a health pharmaceutical industry, Government of India started encouraging the growth of drug manufacturing. Patents Act 1970 saw a major step in this area. The act removed support on composition patents filed by international companies. The act also reduced the patent period to as low as five to seven years for process patents. This move suddenly made Indian market undesirable for multinational companies and slowly one by one, the exited or reduced their presence in India. The vacuum created by the absence of major international players in the market carved a nice for Indian pharmaceutical manufacturing companies. They gained expertise in reverse-engineering the off-patent and generic drugs and subsequently they innovated new processes for manufacturing these drugs at low costs.
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Indian pharmaceutical manufacturing sector holds just 2% of market globally. But the industry is growing at a rate of 10% annually over the last one decade. Indian market is dominated by companies who gained expertise in innovatively engineered generic drugs and active pharmaceutical ingredients (API). The industry is now seeking to become a major player in outsourced clinical research as well as contract manufacturing and research. India has around 74 U.S. FDA-approved manufacturing facilities. This number is second only to United States. In 2005, almost 20% of all Abbreviated New Drug Applications (ANDA) to the FDA are expected to be filed by Indian companies Generic drugs constitute 94% of overall production in India. A recent market research found that the share of Indias pharmaceutical companies in the generics market have risen from 4% in 1999 to 33% in 2007. The industry witnessed a drastic change in 2005 when the amendment to Indias patent law was enacted. This was in response to the WTO demands and the industry is being forced to adapt its business model to this changing operating environment. With the new change, the patent law reinstated with the product patents in accordance to the WTOs Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on both products and processes for a period of 20 years. In these circumstances, it is inadvertent that Indian pharmaceutical companies should adopt global business practices in both operations and innovating drug development. Many companies are quick to reach by increasing their expenditure in business practice changes and companies are relooking at various mechanisms to optimize their current practices. In this context, it is highly important to look at the supply chain management practices employed by these companies. Supply chain is the single most expensive spend item in the balance sheet of a global pharmaceutical company. Efficiency is strategically critical for these firms as they face tough threat from global players. These circumstances make it important for us to look at the issues pertaining to supply chain management in this industry.
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Objectives of the research
The objectives of this research can be summarized as follows:
Critically evaluate the current and relevant literature pertaining to supply chain management.
Analyze the supply chain problems the Indian pharmaceutical industry and Ranbaxy in particular are facing.
Evaluate the supply chain management processes implemented in Ranbaxy laboratories to overcome the challenges it is facing.
To investigate the effectiveness of supply chain management processes in Ranbaxy.
Bring out possible improvements and recommendations to enhance the supply chain management processes of Ranbaxy
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Background information of industry of research
Ranbaxy Laboratories Limited is India's largest pharmaceutical company. Ranbaxy laboratories, incorporated in 1961, is a major global player in generic drugs manufacturing and their products are exported to 125 countries and the company has ground operations in 46 and manufacturing facilities in seven countries. 75% of the Ranbaxys sales come from international market, with United States, Western Europe and China accounts for 75% of their total revenue. Ranbaxys global sales alone are around $1.3 Billion in 2009. Ranbaxy is a highly vertically integrated company which is focused on manufacturing off patent generic drugs at an affordable prize. Because of the low price sensitivity and highly competitive nature of generic drugs industry, it is highly important for Ranbaxy to be best in the class in operational efficiency. Ranbaxy has been growing very rapidly over the last many years and in order to sustain the growth and to improve market response, the company has been trying and applying new ways of doing things, all looking for efficient and effective supply of product. The fast growth and the introduction to global markets are putting strain in the supply chain capabilities of Ranbaxy. The introduction to global market has changed the operational management processes of Ranbaxy. Ranbaxys rigid global manufacturing with the emphasis on specialized production equipments centred in specific geographic location because of economic reasons and the lead time in sourcing critical drug ingredients and extensive regulatory requirements posed by the USFDA other regulators have critically challenged the companys ability to respond to newer global demands. As a strategic initiative, Ranbaxy is slowly moving towards New Chemical Entities (NCE) and Novel Drug Delivery Systems (NDDS) in supporting its long term growth prospects. In 2008, Ranbaxy took a set of major initiatives in restructuring its supply chain management processes. Ranbaxy identified that the companys cost profile is highly skewed towards direct materials and they found that adding a new sourcing profile disrupts its existing profile dramatically. This is forcing the company to enter into short term contracts and at times, spot buying. As the total number of projects executed by the company increased over the period of
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time, the sourcing issues are delaying the projects and the cost of operation is increasing dramatically.
Research questions
The basic principle of research done for this project is as follows.
Evaluate the pertaining information on supply chain issues in Indian pharmaceutical industry.
Through Industry research and discussion with Ranbaxy senior management, understand the context in which they operate and evaluate the key supply chain management issues they are facing. Also look at relevant literature in the field and map the issues Ranbaxy facing into a theoretical framework.
Through industry research, understand the measures taken by Ranbaxy in addressing the problems. Critically evaluate the problems and the solutions and understand them from a theoretical aspect.
Based on the above listed principles, the research questions posed are below:
Are Indian pharmaceutical companies facing supply chain issues that are unique to their nature of business?
Are the problems faced by Ranbaxy unique to it or are the inheriting the problems posed upon them by the industry and the nature of business?
Is Ranbaxy addressing the challenges these challenges adequately? Are the measures taken are sufficient to address the challenges at least in the near future?
What additional measures should Ranbaxy look at to improve their supply chain efficiency?
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Chapter 2
Literature Review and theoretical background
Introduction to supply chain management
According to the Global Supply Chain Forum supply chain management can be defined as the integration of key business processes from end user through original suppliers that provide products, services, and information that add value for customer and other stakeholders. Sehgal (2009) defines supply chain as the flow and management of resources across the enterprise for the purpose of maintaining the business operations profitably. The resources mentioned here can be materials, information or other resources which can be used to make a profit to the organisation. The flow and management, which is mentioned in the definition, is central to the success of the supply chain. The resources may flow through the supply chain, for example a finished product to the whole sale agent (Gattorna, 1998). Some other resources enable other resources to flow successfully through the supply chain, for instance the employees in the warehouse. The planning and operations in an organisation is dependent on the effectiveness of the supply chain processes. An effective supply chain can reduce the cost of goods sold and thereby improve the profitability of an organisation (Sehgal, 2009).
Supply chain elements
The chain consists of two ends; the supply and demand end. The demand for the product originates from the demand end, which is also called downstream. The demand end consists of stores, customers etc, in the case of pharmaceutical industry it may be pharmacies, wholesale distributors etc. The demand end is modelled according to the business requirements of the organisation. For example, for a large manufacturing company, end customers may not be modelled into its demand end but large wholesalers or dealers where modelled into its demand end.
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The supply end consists of the sources of supplies which are required to manufacture the products. The supply end is also called upstream in supply chain terminology. The demand generated at the demand end is addressed by providing supplies from the supply end. The demand end and supply end concept addresses the central issue in supply chain management; balancing the demand and supplies (Sehgal, 2009). The demand originated from downstream nodes which then proceeds to the upstream nodes through the supply chain whereas supplies flows from upstream nodes to downstream nodes through the supply chain. The nodes in the supply chain mentioned above will be typically locations. Locations may be typically manufacturing factory, warehouse, front end stores or vendor warehouse etc. When materials entre into the nodes, some value will be created due to the various operations performed at the nodes. Operations in a warehouse may be receiving and shipping of the material. The central idea of supply chain management is to apply a total systems approach to managing the flow of information, materials and services from raw materials suppliers through factories and warehouses to the end customer (Chopra, 2003). The phrase supply chain is derived from an image of how companies are connected together as observed from a particular organization. This opens up many challenges for logistics management, like that of combining and organizing the flow of materials from many vendors, most of them outside the country, and handling the delivery of finished goods to customers by numerous intermediaries (Bowersox, 2002). The firms that try to decrease cost at the expense of supply chain partners and increase the profit margin do not comprehend that they are merely shifting the cost upwards and downwards, and so, it is not making these firms any more competitive. This is because, these cost will eventually be reflected in the price that is charged from the customers. Logistics management involves managing the flow of materials within the firm, but supply chain management, on the other hand, identifies that this is just not enough, but connection with the external supply chain members, both upward and downwards is also indispensible.
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Thus, supply chain management can be defined as: "The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole" (Burt, 2003)
Core and extended supply chain functions
The core supply chain functions are managed by the organisation itself or in other words partner collaboration is very limited in core supply chain functions. The core supply chain functions include demand planning, manufacturing, optimising supply chain network, supply planning, transportation, warehousing etc. The extended supply chain functions involve collaboration with partners. The extended supply chain functions are performed at both the ends of the supply chain, that is, at supply and demand ends and thus partner collaboration is important for the success of supply chain performance. The extended supply chain function on the supply side will be supplier relationship management (SRM). The SRM process helps the organisation to collaborate with the suppliers by enabling supplier performance management, enabling bidding process for suppliers, strategic sourcing etc (Sehgal, 2009). Customer relationship management (CRM) forms the extended supply chain management process at the demand end. The CRM processes include customer order and fulfillment management, enabling customer collaboration, product return and exchanges, segmentation of customers, customer demographics etc. Apart from being an extended supply chain management function, CRM also enables the organisation in determining pricing of products, support for customers, providing data for target marketing campaign etc.
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Supply chain planning and execution
The planning in supply chain management refers to gathering the information from the supply and demand ends to maintain a synchronised manufacturing and sales plan (Chae, 2009). The planning and execution in supply chain is important since the success of supply chain management depends on eliminating gaps between planning and execution. Successful supply chain management processes can eliminate these gaps to minimum. Theoretically these gaps can be eliminated, but practically it cannot be eliminated completely. This is due to uncertainty in the future market conditions and the risks involved in decisions taken by the top level management (Chae, 2009). Therefore, synchronisation of manufacturing and sales are important aspects a supply chain should accomplish. As mentioned, supply chain planning takes data from both ends of the supply chain. The supply chain management execution operation takes these planning data as input and performs activities such as manufacturing, sourcing, delivery etc which eventually generate revenues for the organisation. The planning in supply chain management has two basic functions; demand management and master production planning (Chae, 2009). In the present business scenario, most of the companies use specific software packages for planning. The types of softwares used by organisations vary according to the complexity of supply chain management planning. The supply chain operational planning requires the coordination of a number of the process, specifically demand planning responsiveness, customer relationship collaboration, order fulfillment/ service delivery, manufacturing, customization, and supplier relationship collaboration must coordinated to satisfy customers and effectively use resources . the system is to provide this coordination is the supply chain planning system. The supply chain planning system and the related information systems seek to integrate information and coordinate overall logistics and supply chain decisions while recognizing the dynamics between other firm function and process. ( Bowersox, J. D. et al, 2007) The demand management helps the organisation to forecast the demands and sales orders which in turn is used in master production planning. Using these forecasted sales data, the master production planning creates production plans for the organisation depending on raw materials
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availability and production capacity. The master production plan is designed to meet the output requirements such as available to promise for sales units, manufacturing unit production quantities and purchase requirements plans for purchase department. After the planning process, the supply chain execution follows. The data from the planning stage is used to execute master production plans. The basic SCM execution is as follows; the promised delivery to the customers or wholesales will be addressed, the targeted amount of production quantities will be achieved to meet the requirements and the purchasing of materials required for the production by the purchase department. In the present scenario, almost all the big players uses sophisticated soft wares for controlling the various SCM planning and execution methods. As mentioned earlier, in practice, there is always a gap exists between planning and execution processes due to unprecedented events. Therefore, what was actually done may not be same as what was actually planned. For a better performance of the supply chain, this gap should be minimized. In order to minimize the gap, key performance indicators (KPIs) should be identified. Using the KPIs, the demand and execution planning can be analyzed. Then the gap between planning and execution can be identified. Thus using the KPIs, the gap can be minimized by rectifying the problems identified. However, for most of the organisations, identifying key metrics is often a difficult task since the number of KPIs will be very large for a supply chain (Gunasekaran, Patel and Tirtiroglu, 2001). Different researches and academic papers lists contrasting number of KPIs in supply chain. For instance, the AMR research lists 45 KPIs while ASCET lists around 100 KPIs for supply chains. Therefore, the organisations will always find difficulty in choosing the right number of KPIs for its supply chain (Lapide, 2000). In the supply chain management perspective, choosing a less number of KPIs is always better (Chae, 2009) which can be managed properly. The KPIs for the supply can be formulated using different frameworks proposed by various researchers. One such framework is Supply Chain Operations Reference Model (SCOR) which can be used to identify KPIs. In this model, the supply chain is divided into four main processes; plan, source, production and delivery. The potential KPIs are developed according to each process. Today, supply network is probably a better term than a supply chain because it probably better describes the nature of supply chain relationships today (it means non-linear
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flows, network-like systems and webs of suppliers and customers). (Rice, 2001) James Rice claims that in future, there might be three possible scenarios for supply network competition: Competing as SC vs. SC literally assuming that the nature of the competition will be between groups of companies from across the supply network competing as one entity, formally or informally. Competing on supply network capabilities the nature of the competition will be between individual companies competing on their internal supply network capabilities. Competing on supply network lead by Channel Master here the nature of competition will center on single, most powerful company of a supply network. The single most powerful company is sometimes referred to as a channel master.
Role of technologies in Supply Chain Management
The supply chain management includes functions such as sourcing of materials, scheduling of production and the distribution activities along with the management of necessary information flows (Bovet and Martha, 2003). In the modern business environment, the success and failures of the organisations can be attributed to the effectiveness of the supply chain (Godsell, Birtwistle and Hoek, 2010). Organisations face many problems due to the ineffectiveness of the supply chain. For example, the unavailability of products which the customer wants and the unwanted stocks the customer does not want creates gaps between the marketing and supply chain. The supply chain effectiveness can be therefore considered as a competitive advantage for the organisations (Fisher, 1997). The supply chain which is viewed as a competitive advantage by organisations has led to the development of supply chain management theories and applications, most of which is IT related such as enterprise resource planning (ERP) (Lenny Koh, Saad and Arunachalam, 2006). The complexity of supply chain has increased in the present business scenario. The management of these complexities in supply chain, collaborations with partners and managing changes in supply chain become critical success factors for an organisation (Kearney, 2003). Therefore, organisations are using information systems to address these issues in supply chain. Information
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system is the central technology used to coordinate divisions and collaboration with partners in the supply chain perspective (Knolmayer, Mertens and Zeier, 2002).
ERP and SCM
When the ERP systems were first developed, its primary objective was not to enhance the supply chain of organizations (Davenport and Brooks, 2004). Instead, ERP systems focused on integrating internal processes of an organization such as order entry, finance, human resources, manufacturing etc. Its only link to the supply chain was its inventory management module. These traditional functions of the ERP system cannot address the challenges involved in a complex supply chain which organizations view as critical for attaining competitive advantage (Chen, 2001). Therefore, the ERP systems have evolved much from its predecessors to extent its support to the supply chain of organizations (Lenny Koh, Saad and Arunachalam, 2006). The ERP systems can enhance the efficiency of operations and reduce costs in organizations. It also helps the organizations to implement best practices approach and thereby consistency (Edwards, Peters and Sharman, 2001). Thus organizations can improve its internal processes mentioned earlier through implementation of ERP systems. The focus is now shifted to extending ERP systems to improve supply chain processes (de Burca, Fynes and Marshall, 2005). In the current business scenario, the ERP systems has been extended to include modules such as customer relationship management, supply chain planning and execution, decision support, automation of sales force etc. The pervasiveness of internet has revolutionized the way firms are thinking about its supply chain. The internet has provided organizations an easy and cost effective way to link the supply and demand ends of a supply chain (Davenport and Brooks, 2004). Organizations are using internet to cut costs and increase efficiency in the extended supply chain functions. As the information flow is vital to the efficiency of the supply chain performance, many companies are now implementing e-SCM (de Burca, Fynes and Marshall, 2005). The e-SCM concept concentrates on the management of information flows through a supply chain by efficiently managing technology and processes in such a way that the information from the supplier and the customers are optimized and deliveries and sourcing are coordinated.
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However, if the ERP system is not implemented according to the business needs of the organization, e-SCM cannot provide an advantage to the organization. In fact, if the ERP implementation is not proper, e-SCM can only create problems at the supply and demand end rather than optimizing the processes at these ends (Norris, Hurley, Hartley and Dunleavy, 2001). Implementing an ERP system in an organization is not an easy task. For instance, a typical ERP implementation in an organization may take one to three years to complete and costs huge amount of money (Akkermans, Bogerd, Yucesan and van Wassenhove, 2003). In order to achieve greater efficiency in the supply chain using e-SCM and ERP as background, management practices and business processes should be modified. The success of e-SCM can be attributed to two main factors (Norris, Hurley, Hartley and Dunleavy, 2001). First, collaboration among partners should be viewed as a strategic asset and trust must be developed between trading partners. Second, the visibility of information in the supply chain should be monitored with proper coordination. Good business relationship is central to collaboration. One of the main challenges while implementing e-SCM in organizations is the partnership challenge since most of the organizations lack control over their partners systems (de Burca, Fynes and Marshall, 2005). To achieve some amount of control, trust must be developed between various partners. Therefore, good relationships with partners are an important factor for the success of e-SCM concept. On the other hand, collaboration and trust exposes the internal activities and performance metrics of an organization to its partners. This visibility of internal operations by partners increases the pressure on the organization since its operations are now transparent. The managers should therefore consider optimizing the entire supply chain rather than improving only their supply chain. However, many organizations are not willing to share information with their partners. Organizations believe that sharing of information will affect their competitive advantage (Agrawal and Pak, 2001) as right information at right time can attain a competitive advantage. One of the main advantages of e-SCM is that it provides organizations with various strategic options. E-SCM improves the adaptability and long term flexibility of the organization (Sarkis and Sundarraj, 2000). With the growth of internet and subsequently e-commerce, customers are expecting less response time and greater degree of customization for products (van Hoek, 2001). In order to sustain in the competitive business environment, organizations should be more
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customer centric than ever (de Burca, Fynes and Marshall, 2005). This requires a strong relationship with the customers in order to create customer loyalty. In this perspective, e-SCM seems to be a strategic initiative to achieve customer loyalty. In order to reduce the cycle times and cost of inventory which are the two main concerns of the supply chain, the entire supply chain, including the partners, must be optimized rather than considering each one individually (Kehoe and Boughton, 2001). The information flow through the supply chain must be integrated in all stages (Kennerley and Neely, 2001). But as the collaboration increases, the complexity of the supply chain increases and can be considered as an enhanced network (Koch, 2001). Traditional supply chains have been linear and fixed. But with the introduction of electronic supply chains, supply chains are no longer linear and fixed. The eSCM contains multiple channels and relationships with partners and fosters an integrated flow of information. As a result, modern firms are embracing e-SCM rather than traditional supply chains. In the modern business scenario, organizations need to respond more quickly and efficiently to changes in the external market and to collaborate with various partners.
E-SCM as a way to avoid Bull Whip effect
The bull whip effect can be considered as the most common problem in supply chains (Trkman, Stemberger, Jaklic and Groznik, 2007). The bull whip effect is the result of magnifying demand order fluctuations as they move up the supply chain (Lee, Padmanabhan and Whang, 1997). Incorrect information originated at one end of the supply chain can cause tremendous inefficiencies when reaches at the other end of the supply chain. Even small fluctuations in demand in one end of the supply chain will enlarge and propagate to the other end (Trkman, Stemberger, Jaklic and Groznik, 2007). The bull whip effect can be minimized by investigating the underlying causes that generates the effect. One of the methods to avoid bull whip effect is to implement e-SCM. The flow of integrated information throughout the supply chain can avoid bull whip effect (Lee, Padmanabhan and Whang, 1997). With the use of the internet, the demand and supply capacity will be visible throughout the supply chain and therefore by the organizations in the supply chain. This will help the organizations to anticipate the demand fluctuations and can respond effectively (Kehoe and Boughton, 2001).
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Integration of SCM and ERP

In the present business scenario, organizations are extending their operations all over the world in search of new opportunities. The competitive business environment and ever changing external business environment are exerting great pressure on organizations performance. The challenge before the organizations is how to tackle the changes in external business environments and how to compete effectively in a global perspective. In an organization with worldwide operations, an organizational wide information system is required to allow the information flow across various geographic locations. Even within the same organization, organizations are seeking to implement organizational wide information systems which allow different departments to cooperate more efficiently (Tarn, Yen and Beumont, 2002). Functional integration is the key to achieve this goal. Functional integration refers to integrating all business functions in an organization, for example, logistics functions of the organization may be integrated with manufacturing, supply management and information technology. This functional integration inside the organization can later be extended to other partner organizations in the supply chain (Ferguson, 2000). In order to achieve efficiency in supply chains, continuous adjustments are required such as risk assessment, assessment of sourcing and delivery alternatives, dynamic pricing etc. the supply chain management systems are expected to perform these issues. On the other hand, ERP systems are not designed to perform these tasks. In the case of ERP systems, demand constraints, capacity and material are considered separately (Bose, Pal and Ye, 2008). On the other hand, SCM systems consider these issues simultaneously and plan quickly. The ERP systems have various limitations in addressing the challenges of SCM such as difficulties in extending operations beyond the organization, poor flexibility when dealing with changes in requirements and minimal functionalities when dealing with management of transactions etc Akkermans, Bogerd, Yucesan and van Wassenhove, 2003). The ERP systems stores and retrieves relevant data and enhance business processes such as sales and distribution, logistics, procurement, manufacturing, inventory management, finance etc. On the other hand, SCM requires decisions taken within and beyond organizational boundaries. ERP systems are basically transaction based systems. The SCM requires collaboration with partners,
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visibility, planning and management of supply chain within and beyond the organization. Therefore, in order to achieve better results from supply chain, the ERP systems and SCM should be integrated (Lenny Koh, Saad and Arunachalam, 2006). While implementing an ERP system, organizations have to modify its business processes, reorder its organizational structures and modify its management processes (Bose, Pal and Ye, 2008). The purpose of ERP systems in organizations is to improve the internal operational efficiency through integration of various operations. On the other hand, SCM focuses on collaboration with various partners in supply chain. Since ERP systems are implemented in most of the organizations, firms are expected to communicate with supply chain partners and facilitate information flow between them. In such a situation, integration with SCM and ERP is a necessary phenomenon to achieve a strategic advantage. In a technological perspective, ERP can be considered as the backbone of SCM. Both ERP and SCM rely on the same technological framework such as internet, intranet or extranet. Therefore, the integration between SCM and ERP is feasible. The most important functionality expected from the commercial ERP packages in the modern business scenario is its integration with the SCM. Since it is evident that information systems can improve the performance of supply chain, Ranbaxy has implemented SAP R/3 ERP package as the transactional backbone for SCM. By implementing this ERP package, Ranbaxy was able to streamline its operations through a single system. Through integration of ERP and SCM, Ranbaxy was able to identify key performance indicators (KPI) which are significant in improving the performance of the supply chain. Ranbaxy also initiated a cost reduction program called CRUSOE (Creatively Releasing and Unleashing Substantial Operational Efficiencies) which was aimed at reducing the cost at supply chain sourcing process.
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Radio Frequency Identification technology (RFID)
The reduction in costs related to the supply chain activities is the key concern for various partners in supply chain. One of the methods employed for the reduction of costs is the radio frequency identification method (RFID) technology (Attaran, 2007). RFID is an electronic tagging method which can be used to identify the product in a supply chain. Even though RFID is not a new technology, its application in the supply chain perspective is new. For an insignificant price, the RFID tag can be included with the product within the manufacturing stages. The RFID tag moves with the product throughout the supply chain until the product reaches its destination, typically customers. At this stage the product can be scanned, which is still at a box or crate. The scan reveals all the necessary information about the product. In RFID technology the data about the product is captured automatically and has the potential to revolutionize the way organizations conducts their business. The RFID tag is made of a silicon chip along with an antenna which enables the tag to communicate with the reader. The tags attached to the products transmit radio frequency signals. The reader reads the transmitted signals and decodes it. The decoded information is then fed to the host computer and matched with the recorded information. The RFID system consists of three major components (Attaran, 2007); the tag, reader and the computer. Tags are silicon chips which are attached to the products. Tags can be either passive or active. The passive tags do not have a battery attached to it. It takes power from the reader and has unlimited life span. The reader transmits and receives radio frequency signals from the tags. The reader captures the signals from the tags and fed the information to the computer. In the case of passive tags, the reader sends a wake up signal for the tags which activated the passive tags. The computer interprets the data received from the reader ad takes the necessary action. RFID system which uses radio waves for automatic identification of objects, information is stored in a microchip in an RFID Tag or in RFID transponders. Which are affixed to the object to be identified? This enables the transfer of identification information to the reader, which converts the radio waves from the RFID tags in to format which can be relayed to computer for further processing.( Jonsson, P. 2008)
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The RFID can be useful for all the partners in the supply chain in different ways (Thangamuthu, 2008). In the case of manufacturers, with the inclusion of RFID technology, the various components can be monitored as they move through a production facility. RFID helps to identify the faulty components at the production plants as well as after being sold. In the case of distributors, RFID tags helps to manage inventory and fleets. This will reduce the manual tasks to be performed while reducing time and shipping errors. In the case of retailers, RFID tags can update stocks level, tracks the history of the products, and prevents theft of products and decrease checkout times. The traditional bar coding system requires individual scanning of products and the bar code must be visible. On the other hand, RFID readers can read hundreds of tagged products simultaneously and the tag is not required to be visible. For example, the tagged products must be inside a crate which can be read from outside using the reader. Furthermore, traditional bar coding system can identify only the type of product identified whereas RFID scanners can identify individual products with all the attributes of the product. The RFID system helps organizations to improve operational efficiency by increased visibility of the inventory (Attaran, 2007). As mentioned earlier, SCM needs tight integration with various applications. The RFID system can track unfinished materials, manage inventory, timely shipments, avoidance of out of stock etc. These issues have increased the adoption rate of RFID in many organizations. The predecessor to RFID, the bar coding system, can only store limited amount of information. The increased information storage by RFID system allows organizations to synchronize its inventory levels. The availability of information is central to the effectiveness of the supply chain. This information is the basis for decision making. The RFID system enables the organization to capture necessary information from the supply chain as the tagged product moves through the supply chain. The out of stock impact is very high for fast moving products. RFID can provide better information about the products and inventory thereby reducing the chances of out of stock impact.
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RFID systems in pharmaceutical industry
One of the major problems in pharmaceutical industry is the threat from counterfeit drugs. Counterfeit products are always a problem for the pharmaceutical companies. These counterfeit drugs affect the image of the brand and the counterfeit products do not satisfy the required standards. In the pharmaceutical industry, these products are very dangerous for obvious reasons. Traditionally, the counterfeit products are more common in under developed markets. But in the present situation, the counterfeit drugs are a global concern (Nand, Singh, Vashist and Drabu, 2010). The RFID technology can be used to tackle the problem of counterfeiting. Since the RFID system records all the details of the genuine products, if a counterfeit product enters at any stage of the supply chain, it can be easily identified by comparing with the data. Taking advantage of the RFID technology, Ranbaxy has implemented Acsis RFID in its products (Business wire, 2004). This is also to comply with the Food and Drug Administration (FDA) standards in the pharmaceutical products issued on February 2004. The experience of Acsis on the implementation of RFID systems in pharmaceutical industries were the basis for selection by Ranbaxy.
Supply chain in pharmaceutical industry

The pharmaceutical industry refers to a complex of processes, operations and organizations involved in the discovery, development and manufacture of drugs and medications (Shah, 2004). The World Health Organization (WHO) defines a drug as any substance or mixture of substances manufactured, sold, offered for sale or represented for use in the diagnosis, treatment, mitigation or prevention of disease, abnormal physical state or the symptoms thereof in man or animal; [and for use in] restoring, correcting or modifying organic functions in man or animal. Since the definition of drugs is very wide, clearly large number of players of varying size and structure plays in this sector. This project aims to study the supply chain initiatives at Ranbaxy, a pharmaceutical company based in India. Ranbaxy has excellent research and development facilities and operates almost all over the world. In the past decade, high returns on investment and huge sales revenue from successful products have changed the way the industry operates (Booth, 1999). The huge turnover has resulted in
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investing huge amounts of money in research and development activities which created drugs for treating incurable diseases which were previously thought to be impossible. The patent periods for these drugs developed were longer and these patents create a technological barrier for other companies to follow. These technological barriers can provide a competitive advantage for the organization. Also, the number of substitutes for a given product in a specific area was less. The products were also less sensitive to price. Therefore, firms in the pharmaceutical industry invested heavily on research and development projects. The recent conditions in the industry have changed a lot. The research and development productivity is decreasing in terms of new chemical entities (NCE) per unit. The patent lives of the products are now less. Because of this shortening of patent lives, the technological barriers existed earlier is decreasing which will affect the competitive advantage of the organization. The number of substitute products has increased in each specific area. The industry is experiencing strong price sensitivity from its customers. The big players in this sector are traditionally depends on blockbuster drugs. But reports suggest that this dependence of blockbuster drugs may not sustain in the future (Butler, 2002). These conditions are very challenging for the players in this sector. But, on the positive side of things in this sector, the market liberalization has opened new markets for the players and it increased the competition between the players. But governments are intervening more on the pharmaceutical industry. Several measures are in practice to control the prices of newly developed compounds and governments are encouraging the use of alternative if possible.
Importance of supply chain in pharmaceutical industry
In the pharmaceutical perspective, the time to market will be the single most important driver (Shah, 2004). A successful drug will yield huge profits in its early life cycle since the competition will be very low at that time. But now this competition free period is decreasing. Since the products in this industry are very sensitive due to health hazards, the regulations existing in this sector is often very strict. The regulations often investigate the safety and efficacy of the compounds, the manufacturing processes involved and the design of plants. Each country
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has its own regulatory bodies for monitoring the production of drugs. On the other hand, this excessive monitoring will hinder the innovation in this industry. The regulatory process is often time consuming and expensive which is also not good for the industry. The monitoring process of a complex drug with complex manufacturing process can take lot of time. The logistics cost in the industry is relatively high some time ago. Traditionally in the pharmaceutical industry, more attention was given to research and development and sales and marketing activities. In the supply chain point of view, sales and marketing are only the extreme ends of the supply chain. As mentioned earlier, the effectiveness of the supply chain can be improved by optimising the entire supply chain. Therefore, in the recent past more and more organisations in the pharmaceutical industry are concentrating on optimising supply chain. Organisations are now viewing supply chain optimisation as a way to create value to the stakeholders of the business rather than concentrating on specific parts of the supply chain. The life cycle of a drug (Shah, 2004) starts from the research phase in which hundreds of tests were conducted using test compounds. For a new drug to be developed and registered it takes almost ten years. The patent process is carried out after this stage. The new drug must be tested rigorously for safety and efficacy. The tests involves, testing for toxicity in the first stages and later on the drugs ability for curing diseases. After the tests, the manufacturing processes are modeled and this stage is called development activity and usually talks some years to complete. The distribution process is the last process to follow.
Components of a pharmaceutical supply chain
A typical pharmaceutical supply chain contains the following nodes (Shah, 2004); primary manufacturing, secondary manufacturing, warehouses or distribution centers, wholesalers, retailers or hospitals. Primary manufacturing: this site is where the manufacturing of active ingredient (AI or API) takes place. It is usually situated at the organizations premises. The process usually involves several chemical synthesis to obtain the complex molecules required and purification if necessary. The actual manufacturing process involves long task processing times. As in the case
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of pharmaceutical industry, intermediate products are often send for a quality test before promoted to the next stage in the manufacturing which is very unusual in many other industries. Some organizations outsource the primary manufacturing process to contractors. The level of primary manufacturing is often varying; with some organizations outsource completely the manufacture of active ingredients. The main reason for outsourcing to contractors is to concentrate on research and development activities rather than concentrating on manufacturing processes. But this will increase the complexity of the supply chain as the supply chain is further extended and involves a new partner. Secondary manufacturing: in this stage, the active ingredient produced at the primary manufacturing site is added with excipient inert materials. The further processing and packaging is done at this site. The final product will be ready for shipping to wholesalers or hospitals. The secondary manufacturing sites are often separated from the primary manufacturing sites geographically. The number of secondary manufacturing sites will be higher than the number of primary manufacturing sites. For instance, many secondary manufacturing sites will exist for a particular market. Since this manufacturing site is connected to the wholesalers, they play an important role in this stage. Almost eighty percent of the demand flows between wholesalers and this site and large part of remaining products going to hospitals.
Processes in the pharmaceutical supply chain
The processes in the pharmaceutical supply chain are almost entirely run by ERP systems. Since the complexity of the supply chain is ever increasing, only an organizational wide information system like ERP systems can address the various issues effectively. The following were the various processes at the pharmaceutical supply chain; Demand management: the demand forecasting is done geographically and are based on historic data, market surveys etc. The tenders for manufacturing may be issued and accepted at this step.
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Inventory management and logistics planning: after the demands have been forecasted, the appropriate warehousing and distribution processes must be planned to meet the requirements. The finished products stock will be evaluated and if requirements still persist, order is placed on the upstream secondary manufacturing site.
Secondary production planning and scheduling: the placed orders are scheduled and executed. If the requirements are high, further orders are placed upstream to increase the active ingredient stock levels.
Primary manufacturing planning and active ingredient inventory management: the order from the secondary production sites will be satisfied with required inventory level and production planning.
Pipeline and development management
The pipelining or sequencing of tests was carried out where unlimited resources are assumed to be available (Schmidt and Grossmann, 1996). In the context of pharmaceutical industry, large number of tests has to be carried out. In this testing method, each test has been assigned a probability of failure which is different from the consideration of project scheduling. The failure one test will affect successive tests and successive tests will be formulated. If the tests are carried out in parallel mode, the effect of failures on successor tasks are not considered and thereby increases the expenditure. But in the real time situations, resources may be often constrained. A different testing methodology when the resources are limited should be considered at this situation. In this approach, each product is tagged with specific tasks (Jain and Grossmann, 1999). Each task has specific duration, cost, resource requirements and success probability. The development phase selects the potential drugs and runs series of tests and process development. This process as mentioned earlier is lengthy and risky. Therefore the problem of risk must be addressed at the development stage (Blau, Mehta, Bose, Pekny, Sinclair, Keunker and Bunch, 2000). This consideration supports the process selection and test plans while considering the risk factors. The activities in the development stage are modelled as probabilistic
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activity network. Each activity is tagged with specific resource requirements, time and success probability. The risk taken to achieve a reward must be considered against the potential reward. The potential reward in the developmental stage is the expected revenue generated from successful drugs in the developmental stage. The amount of risk taken can be weighed against the rewards reaped. This ratio will help to classify different drugs. According to the classification, unwanted and unprofitable drugs can be removed and the successful candidates can be put into the developmental pipeline.
Capacity planning
The capacity planning under clinical tests uncertainty problem was addressed by Papageorgiou, Rotstein, and Shah (2001). The capacity planning describes the allocation of new manufacturing sites to existing or potential sites where capacity has to be increased. The taxation policies of a particular location will play a major role here as low taxation can reduce the production costs. Therefore, location decisions will mostly based on taxation of that particular region. Rotstein, Papageorgiou, Shah, Murphy, and Mustafa (1999) have considered capacity planning under uncertain conditions. Their study was based on three products. The need for present and future capacity planning is considered based on these three products. In capacity planning, when to invest in increasing the capacity is a key issue. When the information from the market is not sufficient, deferring capacity planning is an option. Even though, this strategy decreases the chances of various risks, the time to market of the product increases. So there is also a trade off between when to invest in increase in capacity planning.
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CHAPTER 3
Research Design and methodology

Saunders et al. (2007) says the term research philosophy connects to the development of knowledge and the nature of that knowledge. The research philosophy accepted by the researcher includes the assumptions about the way in which the researcher sees the world. These assumptions can influence the research strategy and the methods chosen in the research strategy. The practical considerations can affect the philosophy the researcher adopts. But, the important influence may be the researcher specific view of the connection between knowledge and the method by which it is created (Saunders et al., 2007). Three main ways of research philosophy are epistemology, ontology, and axiology. They contain valuable differences that can affect the method in which researcher thinks about the research process. RESEARCH PARADIGM The research is an investigation to find out something. The term paradigm is usually used in social sciences, but one that can lead to confusion as it tends to make multiple meanings. The paradigm is a way of examining social phenomena from which particular understandings of these phenomena can be gained and explanations attempted" says Saunders et al., (2007). Research methodology deals with identifying various research methods that is suitable for conducting the research. The research methods take consideration of the research aims and objectives. The availability of resources often affects the selection of research methods (Gill and Johnson, 2002). The research methodology is important in the sense that improper research methods will affect the quality of data collection and subsequent stages. When selecting the research methodology, practical considerations should be followed. The selection of research methodologies will reflect the researchers skills and knowledge. The relevance of the research methodology should be given prime importance rather than selecting some methodologies.
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RESEARCH DESIGN ANSWERING METHOD According to Robson (2002), research design is changing the research question into research project. Research philosophy and approach influence the way the researcher intends to answer research question. Saunders et al., (2007) says that "your research design will be the general plan of how you will go about answering your research question(s)." The three methods in which questions are answered are descriptive, exploratory, and explanatory. Descriptive study Robson (2002: 59) says that descriptive study is to portray an accurate profile of persons, events or situations. This can be first part to or an extension of, a exploratory research or a explanatory research. It is required to have an accurate picture of the phenomena on which the researcher wishes to gather data before the collection of the data. Whisker (2001) explains a descriptive study as one that designs to find out more about a phenomenon and catch it with deep knowledge. Usually, the collection and description is only true for that moment of time. Exploratory study An exploratory study method helps to find out what is happening; to seek new insights; to ask questions and to assess phenomena in a new light (Robson, 2002: 59). It is especially useful if the researcher wishes to clarify his/her understanding of a problem. The three principal methods of exploratory study are 1) interviewing 'experts' in the related subject, 2) a search of the literature, and 3) conducting focus group interviews. Adams and Schvaneveldt, (1991) says "exploratory research can be likened to the activities of the traveller or explorer". The main advantage of exploratory study is its flexibility (Saunders et al., 2007). Explanatory Study Saunders et al. (2007) says researches that create casual relationship between variables is known as explanatory studies. The emphasis of study is to study a problem or a situation to describe relationship between variables. The researcher can carry on and subject the topic to statistical test like correlation to make a clearer view of relationship. Alternatively, the researcher may gather
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qualitative data to describe the causes of relationship between the variables. In another words, the researcher can answer the questions why. Wisker (2001) says it is a simple exploratory study. For this research, exploratory and explanatory studies have been employed. As the descriptive study is not enough wide to choose, it was rejected. Here, the researcher used exploratory and explanatory study.
RESEARCH STRATEGY
As described by Saunders et al. (2007), the research design is the general idea of how the researcher will go about answering the research questions. It includes the research strategies, data collection and analysis methods and the research project timeline. According to Yin (2003), each strategy can be used for descriptive, exploratory, and explanatory. Some of these strategies are clearly come under deductive approach and others come under inductive approach. The most important thing is whether the strategy enables the researcher to answer the particular research and meet researchers objectives. The choice of research strategy is decided by research questions and objectives, researchers philosophical underpinnings, the extent of existing knowledge, and the amount of time and other resources available. According to Saunders et al. (2007), the different research strategies are experiment, survey, action research, grounded theory, archival research, ethnography, and case study. These strategies are not considered of being mutually exclusive. For example, it is possible to use survey strategy as part of a case study. Experimental study: According to Saunders et al. (2007), it is a classical way of research that belongs much to the natural science although it uses in much social science research, especially psychology. Experimental studies are carried out in structured and carefully controlled environments and enable the relationship of phenomena to be analysed and identified. The main purpose is to study the casual links; whether a change in one independent element makes change in other independent element, says Hakim (2000). So this study is discarded here for the proposed research. In addition to this, it is the favoured research strategy for testing hypothesis (Dul and Hak, 2007). Here, the researcher does not test a hypothesis. So it is discarded for this research.
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Action Research: The term action research is first used by Lewin in 1946. It includes an intervention by the researcher to influence change in any situation and to watch, and evaluate the results. Here, the researcher has to work with a client to identify a particular objective. The active co-operation between researcher and client and a continual process of adjustment to the intervention in the light of new information and responses to it from the participant is very important in action research. Surveys: Surveys include selection of a representative and unbiased sample of subjects drawn from the category, the researcher wishes to study. The main methods are asking questions (faceto-face or telephone interviews, by using questionnaires, or mixture of the two. Two main categories of survey: a descriptive survey (identifying and counting the frequency of a particular response among the sample group) and analytical survey (analysing the relationship between different variables in a sample group). As the survey strategy is generally associated with the deductive approach, is not suitable for the proposed study, which contains an inductive approach. Case study: According to Robson (2002:178), case study is a strategy for doing the research, which includes an empirical investigation of a specific contemporary phenomenon within its actual life context using multiple source of evidence. Walsh (2001) says case study as involving a systematic investigation into a single situation or individual event, that is, the researcher studies a single example or case of some phenomenon. Yin (2003) emphasises the importance of context and adds that within the case study, the borders between the phenomenon being searched and the context within which it is being studied are not accurately evident. As described by Robson (2002) a case study is a strategy for doing research which includes an empirical investigation of a specific contemporary phenomenon within its actual life context using multiple sources of evidence. This definition points the fact that a case study is the effective approach for this research. This requires a deep understanding and focus into the research context. Here, the views of all participants related to the research context are examined to gather in-depth understanding of the subject matter under investigation. In addition to this, the research objectives and situation most certainly suit to this strategy. Yin (2003) classifies four types of case studies: single, multiple, holistic and embedded. This research comes under the single case category where a unique case is researched, providing an opportunity to investigate a
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specific situation which almost none have investigated before. Secondly, the research also can be considered as a holistic case since the company is taken into consideration as a whole. THE ETHICS OF THE RESEARCH The ethics explains the appropriate behaviour of researcher towards the rights of individuals who become the subject of study, or are influenced by it. Blumberg et al. (2005) says the research ethics is moral principles, norms or standards of behaviour that guide moral choices about our behaviour and our relationship with others. Research ethics concerns questions about how the researcher formulate and clarify research topic, design research and gain access, gather information, process and store data, examine data, and write up research findings in a responsible and moral way. Saunders et al. (2007) says the common ethical issues are 1) consent and possible deception of respondents, 2) privacy of possible and actual respondents, 3) maintenance of the confidentiality of information provided by respondents or identifiable participants and their anonymity, 4) voluntary nature of participation and the right to withdraw partially of completely from the process, 5) reactions of respondents to the way in which the researcher wants to gather information, including embarrassment, stress, pain, discomfort, and harm, 6) effect on participant of the way in which the researcher use, analyse and report the data, especially the avoidance of discomfort, embarrassment, pain, stress, and harm, and 7) objectivity and behaviour of the individual as a researcher. The avoidance of harm (non-malfeasance) can be considered as the cornerstone of the ethical issue.
Hypothesis:
The hypothesis is developed based on the basic research done on the supply chain management aspect of Indian pharmaceutical industry and Ranbaxy in particular. In order to develop an understanding of the important issues the industry and the organization has been going through, this research went through various academic and news sources that cited the problems. The problems stated are then cross verified with the internal sources in Ranbaxy and materials are
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collected to make sure that the right questions are asked in the research. Based on these evaluations, the following hypothesis are developed. Indian pharmaceutical industry face unique supply chain management problems owing to
their unique nature of business Supply chain management problems in Ranbaxy are similar to that of Indian
pharmaceutical generics drugs manufacturers. they Steps taken by Ranbaxy are necessary and sufficient to address the present problem and will provide them adequate for the immediate future as well.
The
research
methodology
and
philosophy
followed
are
explained
below.
The research analyzes Ranbaxy from an external and internal view point. As an external observer, this research analyzes the supply chain management problems in the industry and the impact in Ranbaxy and the way Ranbaxy addressed these problems. In order to develop an understanding, the researcher will go through academic journals and standard reference textbooks and applies the models and structures where ever applicable. From an internal perspective, this research collects information through interviews and discussions with various Ranbaxy sources. The researcher also will try to obtain internal information sources that would be helpful in evaluating the actual result of a solution implemented.
The supply chain decision making environment can be entailed with various strategic objectives. The criteria used for selection of a solution design in a supply chain management challenge can have a marketing objective, an operational objective, business strategic objective and financial objective. It is imperative in this context to understand the underlying decision making parameters that helped in formulating a solution, which will finally be applied as a supply chain management change. However, it is impossible to always look at the real objective behind a change in retrospect when the market dynamics are changing so rapidly and the problem statement itself gets blurred because of a changed business scenario.
In this context, this research analyzes some of the long pending and pressing problems faced by the Indian pharmaceutical industry and the solutions developed by Ranbaxy to address this
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problem. The description of the problem itself changed over the last decade, with implementing the industry best practices are seen as a norm rather than an exception. For this very reason, some of the ultimate results of the solutions for eg. Automation of billing process is not even critically evaluated because they are accepted by the industry as a whole as a practical solution. This research hence does not evaluate the solutions which are considered as given by the industry.
As mentioned earlier, any solution to a problem implemented will have multiple objectives and often some of these objectives may not be necessarily a supply chain management objective. For this very reason, this research gives due consideration to strategic, financial and operational objectives of a supply chain solution implemented by Ranbaxy. This research however does not go in depth in measuring the result of such a change, but does make a cursory evaluation of the stated objective and the solutions well understood accepted impact. This is important because, none of the functions in an organization works in isolation to address a problem that is applicable to the entire organization. The organizations various divisions and arms should be aligned to the strategic objective of the firm as a whole and supply chain management is a critical part of the whole problem.
Decision making in the pharmaceutical industry also should consider the developments happening outside its domain. Technological advancements, political and legal structural changes etc. plays important role in decision making. Through review of academic journals and standard references, this research tries to understand the general impact of any such change happened over the last few years in the industry and Ranbaxy in particular. One of the main advantages of this research was that the researcher was able to conduct an interview with the supply chain director of Ranbaxy Laboratories, Mr. Girish Gupta. Through that interview, the researcher got a firsthand view of the supply chain processes at Ranbaxy. The information from this interview forms the back bone of this project. All the issues covering the supply chain and its management in Ranbaxy Laboratories are addressed in this interview. The director of supply chain at Ranbaxy was very keen on giving a birds view of the various aspects of the supply chain initiatives at Ranbaxy.
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A CASE STUDY OF RANBAXYINDIA PVT LTD CHAPTER 4
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Data analysis, findings and presentation

Components of pharmaceutical industry manufacturing and distribution chain
The typical elements of supply chain of pharmaceutical company includes

Production Fulfilment Customer Management Forecasting & Planning Procurement
Traditional pharmaceutical industry followed larger production plants operated in selected locations, owing to the highly capital intensive nature of production. Recent trends however challenged this mode of operations as pharmaceutical manufacturers are finding more and more material acquisition delays and expensive regulatory requirements changing the operational parameters existed in the industry. Acquisitions and consolidation also provided pharmaceutical companies global reach and global manufacturing facilities. Ranbaxy followed this industry trend and started opening new production units in various locations across the world. Ranbaxy acquired a number of companies such as Terepia (Romania), Allen (Italy), Ethimed (Belgium), Zenotech(India) etc. Over the period of time the company established its footprint in North and South America, Central Africa and East Asia and China, in addition to its operations in India.
Spending distribution of generics pharmaceutical manufacturing companies

Generics pharmaceutical manufacturing companies operate in a very competitive environment and the cost leadership is the primary business enabler for most of the companys operating in this domain. Hence, unlike research based pharmaceutical companies, generic manufacturing companies have a different cost structure. Raw Materials, Packaging and Freight constitute the bulk of the cost of a drug for the generics drug manufacturer. Other major spending includes
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Capital expenditure for the manufacturing plant, IT and Stores and Spares. Regulatory expenditure is one major spending that is looming in the recent years. Companies have realized that, in order to operate as a cost leader in the industry, they need to excel in the operational efficiencies and raw material purchase costs are the first and foremost target of efficiency management. Standardization of sourcing is the first approach followed by the companies and Ranbaxy is a pioneer in this area among Indian pharmaceutical companies. Ranbaxy introduced institutionalized eSourcing for a significant part of the raw materials including the intermediate spending and solvents and metals. eSourcing dramatically reduces the net spending on raw materials for a company operating multiple plans that manufacturers similar drugs. Managing direct spending is the trickiest part of raw materials management of a pharmaceutical company. Due to varying operational requirements, plants in distinct geographies require varying degrees of frequency and logistics requirements for many of the direct compounds required in the drug manufacturing. Traditionally, companies provide autonomy to the individual plants to operate their own direct spending sources. eSourcing helped plants to centralized source raw materials, MRO and some of the packaging materials. The biggest difference enterprise level raw materials management introduced is an organizations capability in assessing the excess raw material availability and the possibility of utilizing them for better purposes. Ranbaxy Laboratories, after the implementation roll of ERP and supply chain management software across various plants, is able to track down to the exact SKU requirement for operation and hence can generate real time analytics on the excess raw materials. Using this data, Ranbaxy is able to institutionalize eWaste management initiative to sell or trade the reusable recovered solvents and other direct materials. This has dramatically reduced the operating costs of Ranbaxys drug plants.
Overview of supply chain management initiatives in the industry

Pipleline and Development management Various research work in pharmaceutical industry (eg. Schmidt and Grossman on problem of sequence tasks) has proved that given the limited resources, parallel activities introduces risk in the process of development, but provides better NPV when a number of projects are executed
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simultaneously. The risk of a generic drug manufacturing company for a project is consistent and hence parallelizing activities will evidently lead to better NPV. However, operational limitations introduced by the physical settings of the factory limits the amount of parallelism that can be introduced in a factory. Various pharmaceutical management companies have introduced complex operational research software that provides the best combination of processes that can be employed at a particular time in plant. Ranbaxy has introduced SAP R/3 and Ariba based software systems that help them in planning the pipeline and Development of drugs at a particular point of time in a plant. The system uses the following constraints as the sources of uncertainty to derive the most efficient schedule.

Task processing Time Task resource requirement Task success probability Task Cost Projected market return
Capacity planning Considerable research has touched upon the topic of capacity planning and simultaneous development in pharmaceutical companies. Deriving the capacity for an estimated market conditions was the strategy followed by most of the pharmaceutical companies. But the assumptions are proven incorrect in most of the occasions and companys failed to respond to the market fluctuations as they started operating in a global scale. The deterministic problem of allocating new manufacturing capacity to existing or potential sites around the world is described by Papageorgiou, Rotstein, and Shah. The key trade-off in the capacity planning decision arrives because of the lead time between deciding to invest in additional manufacturing capacity and the time taken to bring that capacity up-stream. IT systems are heavily used to arrive at a solution for the problem and following are the traditional decision making parameters used by these systems in deriving a potential answer.

the assignment of resources and the outsourcing decisions window of task sequencing

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timing and expansion for the selection of new plants or the improvement of existing ones production planning.
Supply chain management approaches of Ranbaxy

The major supply chain management initiatives in Ranbaxy can be broadly classified as two:

Process Initiatives Systems Initiatives Though the two initiatives are complementary and the net effect of these two set of initiatives are at the same level, the broad classification is important to understand the capital expenditure and the extent of changes each of these process brought in to Ranbaxy.
Systems Initiatives
System Initiatives are the changes that involves heavy capital expenditure and changes that either meant as an improvement of the existing systems or as an addition to a system that was lacking. The most important system initiative in last 8 years was the massive scaling of Information Systems in the organization. Ranbaxy has been using various Information Systems in its organization. First SAP server was implemented in Ranbaxy in 1998 and the systems were hence used for various critical applications such as inventory management, purchase order processing, employee and customer records management, Accounting and financial processing. Ranbaxy implemented SAP 4.6c for accomplishing these tasks. Various inventory and financial processing such as document filing, processing, TDS run, payment run, etc are automated using the system. Over a period of time, Ranbaxy acquired various other systems for specific applications. The company went on rampant acquisitions in the first decade of 21st century and all these bought in a number of new systems and a plethora of databases, most which contains duplicate or obsolete data. The system did not integrate with each other well and the company was not able to best use the information it has. Ranbaxy used SAPs help to resolve this problem. Ranbaxy rolled out SAP R/3 across all its locations worldwide and used SAP as the primary ERP system that does most of the work. The SAP system worked as a transactional backbone for Ranbaxys supply chain management. A
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single system was implemented to enable all the purchase management globally. Using the system, the company started tracking supply chain performance based Key Performance Indicators. Online inventory reporting and e-enablement of regulatory checks for the manufacturing components are implemented. All these systems greatly improved the purchasing efficiency of Ranbaxy. The system however was inefficient as there was no proper workflow defined between various processes. There was no single and efficient way to track and see all the vendors, inventory etc. Pharmaceutical industry is burdened with stringent regulatory filing requirements and often these filing required information from various systems in the company. This information was not readily available for Ranbaxy and the systems did not cater well to supply the required information. In order to address this problem, Ranbaxy rolled out Omnibond and SAP workflow management system.
The workflow management system dramatically introduced a number of improvements to the Ranbaxys information system. The workflow system shortened the bill payment cycle and shortened the overall turnaround time required in processing a particular invoice. This improvement greatly helped Ranbaxy in relooking at the purchasing policies they were employed till then.
Vendor account reconciliation : Through the SAP and the workflow system, the entire vendor account database was synchronized and through the system, a single purchase order and vendor payment invoice management became possible. The entire vendor details and documentation and historical information related to purchases from the vendor is now available for the accounts payable team and this greatly improved efficiency and reduced leakage.
Dashboard and customized reporting: Dashboards and the customizable reports improved managements ability to view the progress and provided total control for the administration of the organization.
Auditing: The system enabled advanced auditing capabilities and this greatly helped Ranbaxy in the regulatory filing and other legal paper works.
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The system created improved efficiencies through automated workflow management processes and simple tracking and status management support and simplified workflow approval cycles that greatly improved the overall speed of purchase management.
The systems initiative has a number of other components
Distributed and rationalized global production network
Process Initiatives Till mid 2000, most of the process initiatives in Ranbaxy was incremental and was specifically targeted at resolving a problem in hand. However, Ranbaxy understood that it required a serious relook at the processes to improve its supply chain efficiency and to cater its growing global requirements. Incidentally, these changes were initiated as an effect of some of the systems implementations in Ranbaxy. It could be said that the Systems initiative helped Ranbaxy in relooking at its processes. The process initiatives were implemented step by step and location by location. Most of these changes are not yet completely rolled out and there are differences in some of these processes in different company locations owing to specific local reasons. However, in this study, we look at these changes as a single change implemented in the organization. Following are the major process related change related to supply chain management implemented in Ranbaxy.
E- Sourcing and centralized sourcing of components
Roll out of SAP R/3 7.0 helped Ranbaxy to relook at its sourcing policies. With the help of SAP, Ranbaxy can now track the vendor details, stock movements, customer demands, production scheduling etc. This helped the company in implementing a centralized sourcing strategy for most of the components used for manufacturing. Along with the CRUSOE initiative, Ranbaxy introduced e-Sourcing as its primary way of sourcing components for manufacturing. The eSourcing portal developed by Ranbaxy and SAP has dashboards that listed all the approved vendors and the list pricing, the time to delivery, the sourcing proximity and other critical
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information required to decide on the sourcing. Ranbaxy management developed guidelines on purchases through e-Sourcing portal and all the units are strictly required to adhere to these guidelines while sourcing the supplies. Ranbaxy also categorized supplies based on the frequency of usage, quantity and other parameters. The categories are then listed in various purchase blocks and the recommendations are provided on the blocks size, shipment units etc. Automatic workflow orders are created to reflect these purchases and changing of block size or any other parameter require permission from senior Ranbaxy management. Guidelines were issues for regular purchase which go through automatic workflow management process. Exceptional purchases required permissions from high-level managers and in the year end, these purchases are audited and measures are taken to reduce the number of occurrences of exceptional purchases. The e-Sourcing platform caused a major cost saving for Ranbaxy after its introduction.
Smaller batch production and changeover competence
As we have seen earlier, one of the biggest problem all pharmaceutical manufacturers faced are demand fluctuations pertaining to various reasons. The demand can be dramatically fluctuate just in a matter of months and as pharmaceutical manufacturing requires considerable lead time, such a major fluctuation can cost dearly to the companies. The manufacturers could either miss out a new opportunity completely or could stare at a major over production because of a sudden fall of demand. As we have seen in the theoretical study, the bullwhip effect can be most heavily felt at the manufacturers end. One major cause for the demand fluctuation is the global operations presence of the companies. Ranbaxy, owing to its global market and global purchasing model is majorly affected by the demand fluctuations. Owing to various international micro and macro economic changes, the demands are poised to fluctuate and trying to address the demand side is nearly impossible for Ranbaxy. Ranbaxy hence looked at measures to address the problems internally. One major step taken in this direction is to reduce the batch size of production across all its manufacturing units. One added advantage of such a reduction is the reduced inventory carry over. The inventory turn over time of certain high volume drugs of Ranbaxy reduced from 184 days to 92 days as a result.
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This caused a very dramatic cost reduction, while isolating the company from rampant demand fluctuations. The company will now be quickly able to respond to changing market needs.
However, the smaller batch size introduced major inefficiencies due to the changeover effect in manufacturing. The setup time required for some of the manufacturing processes were very high and hence the manufacturing units started losing valuable time because of the frequent changes. Ranbaxy created a SWAT team to look at various mechanism to improve the setup time. Industry best practices were adopted in automating a number of steps. Using the advanced workflow system implemented in Ranbaxy, the manufacturing units were able to predict the changeovers in advance and hence they could plan for the changeover better. Ranbaxy took a number of steps to pre-process some of the non-sequential activities, thereby reducing the setup time. In due course, they were able to develop major inroads in change over competence management and Ranbaxy developed a number of best practices which were adopted subsequently by many other manufacturing companies in the country.
Newer compliance management initiatives
Ranbaxy, just as other major pharmaceutical companies, works under strict regulatory framework laid down by the government. Global operations of Ranbaxy expose it to number of regulatory requirements, often conflicting in nature. Much of these requirements fall in the domain of quality of procurements, manufactured goods, transportation and other supply chain management issues. Ranbaxy, traditionally spend enormous amount of effort to create necessary documentation and other information required for the compliance management filings. Introduction of the ERP system for purchase management and materials management helped Ranbaxy in dramatically reducing the effort spend in assuring that the compliance management requirements are met. The dashboard interfaces developed helped them in tracking down the required data and this had a large impact in the developing the sourcing and supply policies in Ranbaxy.
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Sourcing cost reduction initiative - CRUSOE
Ranbaxy introduced a cost reduction initiative code named as CRUSOE Creatively Releasing and Unleashing Substantial Operational Efficiencies. The CRUSOE team identified that sourcing problems are the biggest money drainers in the Ranbaxys supply chain process and hence looked at various ways to rationalize the same. The CRUSOE focused on an on-demand sourcing platform and arrived at a list of component SKUs that can be centrally sourced. The team also implemented e-Sourcing, aggregate sourcing spends across various locations, standardized the RFQs, and implemented best practices in vendor selection and indirect spend. The sourcing is looked at a strategic initiative than from a mere cost perspective and the company focused at evolving e-Sourcing as its primary sourcing method across its various plants in the world.
Time line of research study

The research is conducted during November through January, 2010-2011. However, the research also also looked at historical information related to Ranbaxy and pharmaceutical industry in general. The research problem presented pertained in the last one decade. However, the problem accentuated in the last five to six years, with the introduction of global market developed for the Indian pharmaceutical industry. The regulatory framework change caused by the introduction of new patent law in India also contributed to a shift in the direction the companies have been taking. In order to obtain a broader perspective of the problem and the changes in the industry, this research looks at data from the last one decade, with giving higher importance to the data from the last few years. The research on Ranbaxy is conducted towards the last few months of 2010 and the early month of 2011. The data taken however is from the last 2 years.
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Limitations of the research

Ranbaxy Laboratories is operating in a highly competitive industry and thus has evident limitations in revealing information regarding certain business processes and implementations. The company sources are unwilling to reveal certain information regarding sourcing strategies and important information on the recent sourcing changes implemented in the company. Hence this study is limited to the available open sources provided by the Ranbaxy contacts. The study also includes certain internal information regarding supply chain information processing policies in Ranbaxy. This section is derived purely based on interviews and conversations with Ranbaxy employees. The information related to Revital food supplement product of Ranbaxy is not yet available and hence not included in the report. The results of certain supply chain initiatives in Ranbaxy may not be quickly reflected in the operational parameters of Ranbaxy. The study is limited to the information provided by the organization. Hence some of the analysis arrived at are useful purely in an academic perspective and may not be directly applicable for the organizations use. The study gave emphasis on the changes implemented in Ranbaxy as a response to the problems according to the organizations perception. The study is limited to the problems the organization and the industry perceives and this study does not make any attempts in defining new problems in the industry. The study however focuses on evaluating whether the solution is adequate to address the problem presented.
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CHAPTER 5
Conclusions and recommendations
Ranbaxy laboratory has taken a number of critical steps to address the supply chain management challenges posed to it. A major management focus is given to the supply chain problems in the company and the company rightly understood the strategic importance of supply chain management processes. The management is willing to critically evaluate
the options and the board of directors approved a number of management initiatives in this area. Ranbaxys willingness in the spending high on implementing some of the key solutions such as expanding and upgrading of its information systems, integrating global manufacturing units to use the same information system, implementation of e-Sourcing
and the process strategies has made a significant impact on its supply chain efficiency. Dashboard view for monitoring and controlling of critical operational parameters, automatic procurement based on resource levels and automatic work flow management systems drastically reduced the cost of acquisition of critical components for Ranbaxy.
The company readily saw the impact of its supply chain solutions in its bottom line. The amount of cost savings Ranbaxy could reap with the new systems and process initiatives is one critical evaluation criteria we could use to evaluate the success of the initiatives. Ranbaxys operational cost as a percentage of total cost dropped from2004 levels to 2009 levels. The cost also fell compared to the total sales achieved in the period. These results are ready proof for the operational efficiency improvements resulted by the companys supply chain management improvement initiatives.
The success of the initiatives however has to be looked at through various other critical parameters. From an organizational perspective, supply chain management holds a critical strategic role in the future prospects of Ranbaxy. In order for Ranbaxy to sustain in the global business arena, a relatively rapid growth of output may not be sufficient and the competitiveness of the organization lies in its ability to improve efficiency with which the resources are employed in value-added
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activities.
Productivity
is
key
determinant
of
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competitiveness, especially in a technology intensive industry such as pharmaceuticals. The supply chain initiatives in Ranbaxy however fail short to look at this key aspect of periodically measuring labour productivity employed in supply chain management activities around its global manufacturing units. CRUSOE initiative, by definition has some elements of improving the employee productivity by releasing employees involved in the manual tasks of sourcing product components. There are sporadic manufacturing plant level changes that are focused on improving supply chain management labour productivity. However, as an organizational level, no major effort has been taken in this front and Ranbaxy should actively consider changes required in improving the productivity of its global operations management staff.
A good supply chain strategy has to provide major support to the short to medium term strategic balance of the company. The supply chain strategy also should provide adequate risk management mechanism for the company and should isolate the company from any major fluctuation uncertainty in the market. The supply chain management strategies
used by Ranbaxy isolated the company to some extend from the major global demand fluctuations in 2008-2009. Demand during the time dropped dramatically and thanks to the eSourcing, shorter production cycles and change over optimization initiatives of Ranbaxy, the company was able to quickly reach to the market conditions and make necessary changes in its production cycles. The company also evaluated the situation from a market to market position and quickly changed the production cycles to target markets which were unaffected by the global financial depression in 2008-2009. This gives us a strong clue that the supply chain initiatives of Ranbaxy is well designed to cater strategic changes in the organization.
Global drug discovery and delivery is an important strategic initiative implemented in all Indian pharmaceutical majors. Ranbaxy aggressively followed this strategy and has spread its wings to almost all the continents in the world. The question whether Ranbaxys supply chain management initiative is tailored enough to withstand this strategic shift is however unanswered. The global information networking is the most important and strategically critical initiative
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Ranbaxy
undertook.
Theres
no
question
that
this
initiative
was
vital
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and has resulted in huge financial and operational efficiencies for Ranbaxy. However, the recent challenges that Ranbaxy is facing raises questions about the scalability of the technology models they adopted. Ranbaxy acquired a number of companies over the period of time and each of these organizations has their own technology implementations.
SAP Enterprise Resource Planning and Systems and Supply Chain Management Systems which Ranbaxy adopted did not integrate well with some of these existing systems. After 1.5 years of unsuccessful attempts by a top consulting firm to integrate the systems, Ranbaxy formed an internal team to redesign much of its existing systems top grade their ERP platforms. This has raised a serious question on the capability of the existing technology implementation and Ranbaxys vulnerability to technology. Questions are raised whether Ranbaxy should focus more on process improvements than on systems, as systems
advancements are facing bottlenecks every now and then. One interesting aspect of Ranbaxys supply chain management solutions that, it addresses and not so direct supply chain problem it faced. Europe has been Ranbaxys Achilles heels, as the company faced a number of legal and compliance management challenge. The systems policy Ranbaxy implemented as a supply chain solution helped the company to meet this challenge to some extent. The result was directly felt on supply chain policies. The European manufacturing units of Ranbaxy has been traditionally good at drug discovery, but the drug delivery from these units proved expensive. The new supply chain systems, aided with its compliance management policies helped Ranbaxy to identify delivery from cheaper locations to Europe by completely adhering to stringent European regulatory policies. The compliance management initiatives thus proved very effective for Ranbaxys operations.
However, on a market to market basis, Ranbaxys supply chain initiative has seen varying strategic effect. Lets take the US market as an example. Ranbaxy laboratories have 46 subsidiaries and one joint venture covering important areas around the world. US operations of the company account to 36% of its total sales. Six subsidiaries supply to this market which is growing 16% year over year. Interestingly, the companies twin objectives of global drug discovery and proximity delivery model of generics have failed to achieve the required results in this market. The manufacturing facilities in India, the primary source for the US market,
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produces almost 72% of the solution drugs and 44% of generics drug for the US market. Ranbaxys supply chain strategy of proximity delivery suggests that, the company should improve competitiveness in the US market through supply from the Americas, primarily from its low cost South American manufacturing facilities. Shipping costs and regulatory issues are challenging the current delivery model which is proving costlier quickly. Ranbaxy has realized this mismatch and has taken actions recently to plug this
problem. The newly acquired SAP based demand prediction systems are helping Ranbaxy in achieving better (total cost/delivery cost) ratios than earlier.
Taking support from the above facts, this research concludes with the following observations.
Ranbaxys supply chain management challenges are similar to that faced by the Indian generics pharmaceutical manufacturing companies. The growth requirements of these companies are forcing them to go global and the supply chain has become the most vital element of organizations strategy.
Demand prediction and sourcing are the two most important supply chain problems faced by Ranbaxy. Though there are a number of regional challenges owing to regulatory differences, government policies and competition, Ranbaxy realizes that, properly addressing the above mentioned two challenges will prove critical to the organizations
future sustenance.
Technology focus and process improvements are the two areas Ranbaxy concentrated on addressing the problems. The initiatives saw wide acceptance in the organization and there are a number of improvements quoted which are directly or indirectly related to the systems initiative
The company need to re look at the labour productivity and associated operational efficiencies and should introduce new systems and practices to improve the efficiencies of its labour force.
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Ranbaxys financial results show important reductions in the cost of operations (the cost of operations grew much slower compared to the sales) over a period of time (the study analyzed 2004 to 2008).Sporadic spikes can be explained based on the acquisitions and mergers Ranbaxy underwent. The result speaks for the results of supply chain
initiatives of Ranbaxy.
The supply chain model in Ranbaxy is capable of addressing the immediate challenges in hand. The company however should not be complacent and should look out for newer potential risks and should be able to quickly adapt new strategies to address those challenges. Global distribution and global market presence helped Ranbaxy in isolating some of the challenges it faced during the global financial recession in the last few years. The technology infrastructure of Ranbaxy is however facing critical limitations and the company need to address the structural issues as a priority. The company need to relook at the labour productivity and associated operational
efficiencies and should introduce new systems and practices to improve the efficiencies of its labour force.
The supply chain model in Ranbaxy is capable of addressing the immediate challenges in
hand. The company however should not be complacent and should look out for newer potential risks and should be able to quickly adapt new strategies to address those challenges.
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15) Gattorna, J 1998; Strategic supply chain alignment: Best practices in supply chain management. Aldershot: Gower. 16) Gill J and Johnson P 2002; Research Methods for Managers (3rd edn). London: Sage 17) Godsell, J, Birtwistle, A and Hoek, R.V 2010; Building the supply chain to enable business alignment: Lessons from British American Tobacco (BAT) ; Supply Chain Management: An International Journal Vol: 15 (1). 18) Gunasekaran, A., Patel, C. and Tirtiroglu, E. 2001, Performance measures and metrics in a supply chain environment, International Journal of Operations & Production Management, Vol. 21 19) H.A. Akkermans, P. Bogerd, E. Yucesan and L.N. van Wassenhove 2003; The impact of ERP on supply chain management: exploratory findings from a European Delphi study, European Journal of Operational Research 146 (2) 20) Jain, V., and Grossmann, I. E. 1999. Resource-constrained scheduling of tests in new product development. Industrial Engineering and Chemical Research, 38. 21) Kearney, A.T. 2003, "Managing supply chains in the 21st century", Executive Agenda, Vol. 6 22) Kehoe, D. and Boughton, N. 2001, Internet-based supply chain management a classification of approaches to manufacturing, planning and control, International Journal of Operations and Production Management, Vol. 21 (4). 23) Kennerley, S. and Neely, B. 2001, Enterprise resource planning: analysing the impact, Integrated Manufacturing Systems, Vol. 12 (2). 24) Knolmayer, G., Mertens, P., Zeier, A. 2002, Supply Chain Management Based on SAP Systems, Order Management in Manufacturing Companies, Springer-Verlag, Berlin, . 25) Koch, C. 2001, BRP and ERP: realising a vision of process with IT, Business Process Management Journal, Vol. 7 (3). 26) Lapide, L. 2000, What about measuring supply chain performance?, ASCET, Vol. 2 No. 15 27) Lee, H.L, Padmanabhan, V., and Whang, S., 1997; The Bullwhip Effect In Supply Chains; Sloan Management Review; Vol 38 (3).
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28) Lenny Koh. S.C, Saad.S and Arunachalam. S 2006; Competing in the 21st century supply chain through supply chain management and enterprise resource planning integration; International Journal of Physical Distribution & Logistics Management; Vol 36 (6). 29) Marlton, M.J. 2004; Ranbaxy Pharmaceuticals Inc. Selects Acsis For RFID; Addresses Need to Meet Wal-Mart's RFID Compliance Requirements for Class 2 Pharmaceuticals; Business Wire June 2. 30) Nand, P, Singh, A, Vashist N, Drabu S 2010; Emerging trends of RFID in anticounterfeiting; International Journal of Community Pharmacy, Volume 3 (1). 31) Norris, G., Hurley, J.R., Hartley, K.M. and Dunleavy, J.R. 2001, E-business and ERP: Transforming the Enterprise, John Wiley, London. 32) Papageorgiou, G. E., Rotstein, G.E. and Shah, N. 2001. Strategic supply chain optimization for the pharmaceutical industries. Industrial Engineering of Chemical Research 40. 33) Rotstein, G. E., Papageorgiou, L. G., Shah, N., Murphy, D. C., & Mustafa, R. 1999. A product portfolio approach in the pharmaceutical industry. Computers of Chemical Engineering, 23 34) Sarkis, J. and Sundarraj, R.P. 2000, Factors for strategic evaluation of enterprise information technologies, International Journal of Physical Distribution & Logistics Management, Vol. 30. 35) Schmidt, C. W., and Grossmann, I. E. 1996. Optimization models for the scheduling of testing tasks in new product development. Industrial Engineering of Chemical Research, 35. 36) Sehgal, V.; Enterprise supply chain management: Integrating best-in-class processes ; John Wiley & Sons Inc; 2009 37) Shah, N 2004; Pharmaceutical supply chains: key issues and strategies for optimisation; Computers and Chemical Engineering 28. 38) Tarn, J.M., Yen, D.C., Beumont, M. 2002, "Exploring the rationales for ERP and SCM integration", Industrial Management & Data Systems, Vol. 102 (1). 39) Thangamuthu, K. 2008; Issues with Supply Chain and RFID in the Retail Industry; SAS Institute Inc. White Paper.
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A CASE STUDY OF RANBAXYINDIA PVT LTD Appendix
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Interview with Girish Gupta, Director (Supply Chain) , Ranbaxy
Profile of Girish Gupta : http://in.linkedin.com/pub/gupta-girish/14/72/B12
What is the most challenging supply chain problem in Ranbaxy ? Ranbaxy operates in 125 countries across 5 continents. We have customers in the remotest corners in the planet. That is just the geographical challenge on our supply chain. We have a little more than 7000 SKUs of drugs, supplied through 6 different channels. We have 11 manufacturing units in various parts of the world. We work with over 40 contract manufacturers and numerous other dosage form units in all the 5 continents. We drastically reduced our suppliers, but we still have close to 40 suppliers for the drug components alone. We have more than 15000 SKUs of packaging materials. Managing all these things and an operation that runs 24 * 7 in 5 continents is a challenge in itself. All these complexities bought in its on cost of managing. Before implementing SAP, we used run close to 400 database systems in our enterprise. And we had no clue on what is available where and how and when. A good amount of data was duplicate and there was no way to obtain a consolidated view at any point of time. We worked on plain guess work at times. The more we tried to control unstructured data, the more it slipped away from our hands. We realized that in order to grow and scale well, we have to have an efficient supply chain process. We looked at various options over the period of time. We looked at IT outsourcing, but we found it not suitable for our operations.
What are some of the important initiatives Ranbaxy took to address these challenges? In 2003, we set of target of achieving 25,000 crore sales turn over by 2015. We realized that we need a system that can scale to our requirements. A system that could help us in achieving our target, a system that would grow with us. We approached SAP with this challenge. I think that was the biggest initiatives in our supply chain process. SAP helped us in finding the leakages in the system. We looked closely and found there are a lot of things we could do to clean up the system. We took a few drastic measures. We introduced global purchasing, took a major cut on our suppliers, and even changed the manufacturing units of certain drugs.
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Europe has been always tough to us. We faced a lot of legal challenges and we had to address them. One biggest challenge was the shipping through Europe. We figured out alternative routes. We relooked at the manufacturing of certain APIs and decided to move a few out of Europe. Where ever we moved out, we found newer opportunities. Without the help of SAP, none of these things wouldve been possible. Some of the numbers are published, but overall our estimate is that we cut down approximately 30-32% of costs. Most importantly, the systems helped us in growing.
What is the impact of extensive IT role in Ranbaxy ?
IT is extensively used in Ranbaxy. Almost all departments of Ranbaxy, including manufacturing, marketing, supply chain, and R&D sees one or other form of IT implementation. I have been part of the SAP supply chain roll out in Ranbaxy. Before deploying the ERP package, we had numerous applications across various departments. Some very simple and important operations like taking the outstanding stock of a drug used to take almost 3 to 4 days. It was impossible to calculate how long it required in procuring some of the APIs. We had to rely on independent contract manufactures to tell us when they could deliver. ERP implementation dramatically changed this scenario. We now have the ability to track down each drug and each batch of drug; find where they are now, what is the outstanding inventory of a specific drug in a specific distributors location. I strongly believe that our ability to become the world's leading pharmaceutical company depends largely on the supply-chain management structure that we currently employ within and outside the organization. IT plays a key role in all this.
How difficult was the roll out of the ERP system ? What are the issues you faced ? Implementation of SAP was a very painful and lengthy process. We had to change the entire operating process we followed till then and there were strong resistance from almost all departments. We faced horrendously long wait to get the system up and running. We spend a huge fortune on a high-level consultancy to ensure that we got a world-class supply chain
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solution to run our operations. You'd be surprised to know that Ranbaxy's IT team, with business managers and SAP, spent a lot of man hours making sure that the supply-chain solution works efficiently. I feel that it was one of the most crucial factors in mapping out Ranbaxy's growth strategy. I haven't seen many companies even in west that uses IT as heavily as us. Many companies might be using SAP, but the extent to which they are dependent on IT will be different. We heavily use SAP's Advanced Planner and Optimizer (APO) etc, which dramatically changed our efficient in planning. Infact, our challenge was in finding the appropriate people to work on the project. It is worth reiterating that Ranbaxy is one of the few companies that generate a crew of people who understand APOs better than anyone else in India. Only the APO makes it possible to cope with a situation where so many new products and R&D projects are introduced into the system every day. Our SCM is the most critical link on which Ranbaxy's success depends.
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MIdhin Final Dissertation 11111

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A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD Importance of the study

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Research problem and its significance

A CASE STUDY OF RANBAXYINDIA PVT LTD

Supply side challenges

Demand side challenges

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Global manufacturing presence

Industry of research and its significance

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Objectives of the research

The objectives of this research can be summarized as follows:

To investigate the effectiveness of supply chain management processes in Ranbaxy.

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Background information of industry of research

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Literature Review and theoretical background

Introduction to supply chain management

Supply chain elements

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Core and extended supply chain functions

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Supply chain planning and execution

A CASE STUDY OF RANBAXYINDIA PVT LTD

A CASE STUDY OF RANBAXYINDIA PVT LTD

Role of technologies in Supply Chain Management

A CASE STUDY OF RANBAXYINDIA PVT LTD

ERP and SCM

A CASE STUDY OF RANBAXYINDIA PVT LTD

A CASE STUDY OF RANBAXYINDIA PVT LTD

E-SCM as a way to avoid Bull Whip effect

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Integration of SCM and ERP

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

Radio Frequency Identification technology (RFID)

A CASE STUDY OF RANBAXYINDIA PVT LTD

| ANGLIA RUSKIN UNIVERSITY

A CASE STUDY OF RANBAXYINDIA PVT LTD

RFID systems in pharmaceutical industry