Eli Lilly Case Analysis

Johana L. Diaz Charles

Operations Management

Nabil Rageh

Summer 2013

Case Analysis #1

Eli Lilly and Company: The Flexible Facility Decision (1993)

Eli Lilly and Company was one of the most important developers, manufacturers, and marketers of pharmaceuticals in the United States. The company’s case analysis is about the important decision that Steve Mueller, the strategic facilities planning manager, has to make about the type of manufacturing facilities to construct for the three products that the company is expected to launch in 1996. Lilly’s current manufacturing strategy consisted of having a specialized plant to produce a specific product or set of products. In the past, this had worked well for the company. However, with the increasing competition, the management set the goal of reducing the development leadtime by 50% to introduce a new product faster, and reduce manufacturing costs by 25% to offer products at lower prices. The alternative to the current strategy was to build a flexible manufacturing facility in which the company could produce all of the three products it was expected to launch in 1996. Also, as part of this alternate strategy, the facility could serve as a launch plant for future new products. Whichever the alternative the company chooses, it needs to be aligned with the management’s goals.

There are pros and cons to each alternative. Having a specialized plant provides higher output, lesser total costs per year, and 80% effective utilization of the facility. However, there would be no reduction in the development leadtimes because the facility would not be flexible enough to accommodate changes to the product in case that the products did not get FDA approval, or simply produce a new product. Moreover, due to the time that is spent to design the facility for the specific product, the company would not able to introduce its products faster in the marketplace. Also, the company would incur retrofit costs for every new...