Eli Lily Case -- Operations Management

Eli Lilly and Company: The Flexible Facility Decision

Eli Lilly, as one of the four largest companies in the ethical pharmaceuticals industry, is facing severe conditions induced by the increased cost in developing new drugs, high approval risk, government restrictions on drug price, introduction of generic brand drugs when the patent expires, fierce competitions, etc. The company, in order to better recoup the high research and development cost and to remain competent in the industry, has decided to modify its manufacturing facilities to make them either specialized, flexible, or launch ((start with flexible and then transfer to specialized). The new facilities will be constructed to produce three new pharmaceutical products: Alfatine, Betazine, and Clorazine. The company aims to reduce development leadtime by 50% and manufacturing cost by 25%.

From a qualitative perspective, the pros of building a specialized facility includes lower initial construction cost, lower annual operating cost and high productivity per unit of capacity. There are also fewer problems and batch failures because the operators would become experienced in running the processes. Moreover, there is always excess capacity reserved in case the demand spikes and specialized facility will be able to capture and meet the high demand. However, there is high risks entailed and high cost of retrofitting to be incurred if the product does not make it to the market. Also, this kind of facility does not meet the goal of 50% reduction in time to market. Also, the company must make construction plan at least three months to ensure that the product will be launched on time.

On the other hand, a flexible facility allows the product to be released much faster because the flexible facility is more adaptable, thus processes for making new products does not have to be finallized early in the concept and design phase of construction. Also, it have the capability to produce virtually any new bulk chemical...