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Following its recent acquisition of Wyeth, Pfizer has 79 manufacturing plants around the world?43 from Pfizer and 36 from Wyeth-and relationships with about 250 contract manufacturers. It?s a wealth of resources, which altogether make 32,000 SKUs. Now, how to consolidate it all?
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Following its recent acquisition of Wyeth, Pfizer has 79 manufacturing plants around the world—43 from Pfizer and 36 from Wyeth—and relationships with about 250 contract manufacturers. It’s a wealth of resources, which altogether make 32,000 SKUs. Now, how to consolidate it all?
Pfizer isn’t saying—yet. The company said it would announce its manufacturing integration plans three to six months after “day one” of the combined company, which was on October 16, 2009. That means we should know by mid-April.
Only 40% of the combined sites overlap, says Tony Maddaluna, senior vice president of strategy and supply network transformation for Pfizer Global Manufacturing. That is not surprising, as Pfizer is widely believed to have bought Wyeth primarily for its biologics and vaccines business. Before the merger, only 5% of Pfizer’s global manufacturing base was in biotech. Now, biologics make up 20%, about 16 plants, and small-molecule accounts for 60%, or some 47 sites. (The other 20% produce consumer, nutrition, and animal health products.)
An Ongoing Transformation of Pfizer’s Manufacturing Network
Combining such large organizations is a big task, of course, but Maddaluna says the integration fits into a broader project that began before the merger, to transform Pfizer’s global manufacturing and supply operations. Following the acquisitions of Warner-Lambert in 2000 and Pharmacia in 2003, Pfizer had 100 plants worldwide from an array of legacy companies. By 2008, they had whittled that down to less than half.
“Our goal is to be a globally competitive make-or-buy network,” says Maddaluna. “We know we need to be fast, flexible, and innovative, and we need to optimize and leverage our installed asset base.”
Maddaluna’s use of phrases like
make or buy
are revealing. Like some other Big Pharma companies, Pfizer is shifting its mindset from that of the traditional fully integrated pharmaceutical
, or FIPCo, to that of a fully integrated
, or FIPNet. That means it is giving up the notion that it has to manufacture everything in-house.
And indeed, the company works with a large array of contract manufacturing organizations (CMOs). Of its current roster of 250 CMOs, a large number came with Wyeth, who outsourced all of its small-molecule active pharmaceutical ingredient (API) manufacturing.
“A good portion of the contract manufacturers Pfizer has been working with—about 70%—are former Pfizer sites,” says Maddaluna. “When we decide to exit a site, we often do so with a supply agreement. We have had a lot of success with that.”
In determining where to manufacture which products, regulatory filings or technology transfer issues would not be a deciding factor. “When making decisions like that, of course you have to look at what is involved in executing your plan, in terms of things like timing and resources,” he said. “But the focus is on optimizing everything to your end strategy. We’re not going to make tech transfer a bottleneck.”
Manufacturing Aligned with Business Units
Before the Wyeth acquisition, Pfizer had already moved away from grouping production sites geographically. Now they have aligned the combined company’s manufacturing resources with nine business units, so that internal and external supply organizations are focused on meeting the company’s business needs. “A lead for each manufacturing operating unit sits on the commercial unit business team,” says Maddaluna.
Supporting functions, however, such as finance and human resources, are managed across the business units. “If you split all those up, you would lose synergy,” says Maddaluna.
Maddaluna also emphasizes that transforming the company’s manufacturing network is about more than saving money. “The competitive advantage of our manufacturing network is not just about cost,” he says. “It’s also about quality and secure supply. We recognize that it’s easy to lose your reputation for quality, so we are not about to put that at risk.”
Sharing Best Practices
For the integration process, Pfizer established 15 subteams, from operations such as manufacturing, supply, and procurement, and each team had a counterpart within Wyeth. Maddaluna said it was striking to see how culturally similar the two organizations were. “In our first meetings with our Wyeth colleagues, you couldn’t tell who was from which company, because the way everyone talked about their work was the same.”
As part of the process, the groups also shared best practices.
“Wyeth was well advanced on some things, such as their plant network rationalization, their operational excellence programs, and the implementation of an enterprise resource planning system, or ERP,” says Maddaluna. “So we followed their lead in those areas. For example, Pfizer switched to the ERP system that Wyeth was implementing.”
Synergy Targets Due By 2012
So once Pfizer announces its plans for its manufacturing sites, how long will it take to implement those decisions? “Our synergy targets are due by 2012,” says Maddaluna.
The overall synergy target for the whole company is $4 billion, on top of $2 billion in cost savings that Pfizer was already targeting before the merger. “That makes a total of $6 billion,” Maddaluna clarifies. “We can't use the merger to achieve our previous target of $2 billion.”