CHAPTER ONE: INTRODUCTION
1.1 Background of the study
The supply chain parties, namely; the suppliers, manufacturers, distributors, wholesalers, retailers, third party service providers (3PLs), are under pressure to lessen and balance their costs, time and inventories to continue to be profitable while delivering their promise to their customers. Borac, Milovanovic & Andjelkovic (2010) observes that embracing supply chain management (LSCM) can help attain this goal. However, Amarela (2017) notes from Azagedan et al. (2013) that the environmental uncertainty affects lean operations and lean purchasing practices. As a result, complex environments make it more difficult to identify, diagnose and respond to problems.
Previous researches describe supply chain integration as a competitive resource that manufacturers use to create economic rents and that this could affect the overall performance positively. Supply chain integration, customer-supplier collaboration and partnership have been the trend in business practice and management across industries (Shou & Feng, 2013). Shou & Feng (2013) endeavors to show that supplier performance is relationship driven. Lacoste and Johnson’s (2015) findings are slightly counter-intuitive. They find in their study that the supplier performance is process-driven. In this case they mentioned that the supply chain integration could have effect on supplier performance from the process driven perspective. One of the process driven tools is lean supply chain modeling (Lacoste and Johnsen, 2015). This is in line with Shou ; Feng (2013) observation that lean supply chain modeling and infrastructural manufacturing decisions provides means to improve supply chains and by that supplier’s performance. Their findings confirm that there is a mutual and recursive influence between supply network characteristics and practices for extending the scope of lean programs to the supply network. They found that supply network characteristics can either facilitate or complicate the adoption of lean practices, but also that the initial match/mismatch state of the supply network characteristics is not frozen and companies can lever on lean practices to modify it toward more favorable conditions. Based on these premises, they classified practices for extending the scope of lean programs to supply networks into four groups: “supplier involvement, knowledge transfer, lean program commitment and lean program alignment” (Shou & Feng, 2013).
1.1.1 Lean Supply Chain Practices
Lean practice refers to an orderly method to enhancing value to the customer by identifying and eliminating waste through continuous improvement, by flowing the product at the pull of the customer, in pursuit of perfection (Manrodt and Vitasek, 2008). Typically, lean supply chain is a network of organizations directly connected by upstream and downstream flows of products, services, finances and information that collaboratively work to reduce cost and waste by efficiently and effectively pulling what is required to meet the needs of the individual customer (Lysons & Farrington 2006, Manrodt and Vitasek, 2008). Activities involved in a supply chain web entails procuring raw materials and parts, producing or assembling the products, storing the products, order processing and tracking, through to the distribution and delivery of the product to the final customer (Sanders, 2012).
Various research works and articles have acknowledged lean practices systems such as just-in-time (JIT), total quality management (TQM), total preventive maintenance programs, human resource management, value stream mapping, and vendor development, as well as their impact on operational performance (Demeter & Matyusz, 2011; Shah & Ward, 2007; Pal & Kachhwaha, 2013; Cudney & Elrod, 2011; Cua, McKone & Schroeder, 2001; Corbett & Klassen, 2006).
Davis and Heineke, 2005; Womack, 1990; and Badurdeen, 2008, identifies lean procurement, lean production and lean transportation as the components of Lean Supply Management.
1.1.2 Supply Chain Performance
According to Haag, Cummings, McCubbrey, Pinsonneault, & Donovan, (2006), performance involves the accomplishment of a given task measured against preset known standards. It would be expected that overall performance determines an organizational survival. It is a set of metrics used to quantify both the efficiency and effectiveness of actions; performance measures need to be positioned in a strategic context, as they influence what people do. They further observe that organizational key dimensions of lean supply chain’s performance can be defined in terms of quality, delivery speed, delivery reliability, price (cost), and flexibility. Time is described as both a source of competitive advantage and the fundamental measure of lean supply chain’s performance. Under the just-in-time (JIT) manufacturing philosophy the production or delivery of goods just too early or just too late is seen as waste. Similarly, one of the objectives of Optimized Production Technology (OPT) is the minimization of throughput times (Haag et al., 2006).
Organizations use the balanced scorecard approach as a tool for measuring performance. The balanced scorecard supplies managers with answers to: how do we look to our shareholders (financial perspective)?, what must we excel at (internal business perspective)?, how do our customers see us (customer perspective) and how can we continue to improve and create value (innovation and learning perspective)?. The balanced scorecard helps the organization translate its vision and strategy through the objectives and measures defined rather than stressing on financial measures which provide little guidance. According to Edgeman et al., (2004), measurable goals and objectives is one of the most important factors to a successful strategy.
Innovation of the balanced scorecard has ensured that while the balanced scorecard retains traditional financial measures telling the story of past events, where investments in long-term capabilities and customer relationships were not critical for success, it has factored in, the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation (Halldorsson, Kotzab, Mikkola, Skjoett-Larsen, (2007). The balanced score card is the performance measurement tool adapted to aid in investigating the lean enterprise and the supply chain performance of pharmaceutical companies in Kenya focusing on lean supply chain management practices; increase in lean supply chain efficiency; cost leadership; customer satisfaction; waste reduction; best practices and lean supply chain benchmarking (Onyango, 2011).
1.1.3 Pharmaceutical Industry in Kenya
According to Kenya National Bureau of Statistics (2012), Kenya is currently the regional hub for production of pharmaceutical products in the Common Market for Eastern and Southern Africa (COMESA) region, contributing about 50% of the regions’ market. Currently, over 60% of the region’s estimated 50 recognized pharmaceutical manufacturers are based in Kenya with about over 10,000 drug molecules being registered by The Kenya pharmacy and poison board -(Export Processing Zones Authority, 2005). These products are grouped according to various and specific levels of outlet as free sales/ over the counter, pharmacy technologist dispensable, or pharmacist dispensable/ prescription only.
The pharmaceutical industry business chain entails three segments, namely; the manufacturers, distributors, retailers and the final consumer. All these play a major role in supporting the country’s health sector, which is estimated to have over 4,600 health facilities countrywide (Kenya National Bureau of Statistics, 2012).
Pharmaceutical manufacturers function in an intricate atmosphere due to their production processes that involves numerous interconnected steps that use lots of materials from diverse suppliers (Altria and Carleysmith 2009).
Kenya Medical supplies Agency (KEMSA) manages all drug supplies to government hospital in the country and hence is the biggest purchaser of medicine produced both locally and through importation (Mussumba, 2014). KEMSA procures about 45 % of the pharmaceuticals in the Kenyan market by advertising through open tendering program and supplies them to hospitals categorized from level 1 to level 6 and referral hospitals in the country, all giving a total of about 4600 health facilities in the entire country.
After a drug is launched, McFarlane ; Sheffi (2003) observes that a completely different set of objectives, drivers, and constraints become dominant. The key stakeholders in this supply chain include multiple government agencies, hospitals, clinics, drug manufacturers, drug distributors, pharmacy chains, retailers, research organizations, and the FDA. To compound matters further, the same supply chain is responsible for the distribution of prescription drugs, over-the-counter (OTC) medicines, generics, as well as biologics having different handling needs and operational objectives (McFarlane ; Sheffi, 2003). Indeed, there are numerous other organizations, such as insurance companies, healthcare management organizations, and GPOs, that further increase the complexity. Due to very different business objectives, these organizations make the task of managing supply chain even more difficult. Furthermore, due to the regulatory nature of the industry and numerous merger and acquisitions to acquire more R;D expertise, many pharmaceutical supply networks have grown in an uncontrolled fashion rather than being planned for optimal performance (McFarlane ; Sheffi, 2003).
1.2 Research Problem
The impact of lean practices on a business success is paramount. Lean instruments and methodologies have enabled companies to be more flexible and more profitable. The process comprises pull production, quality development, process focus, continuous improvement, value stream management, and worker empowerment. The objective of lean practices is to satisfy customer demands on the highest possible level through waste reduction (Shah ; Ward, 2007, Pal ; Kachhwaha, 2013). Elimination of wastes can be considered in the human resources, design, production processes and activities, distribution, and inventory sections (Sang, Khairuzzaman, Abdul, Boon ; Yew, 2013; Kannan, Selladurai, ; Karthi, 2013). According to the concept of LP, implementing its tools and techniques help minimize such wasted effort (Shah and Ward, 2003). During the first steps, supply chain partners should understand the lean concept, and then implement its practices through high levels of collaboration and cooperation.
Various research works and articles on lean practices focus on the implementation of systems, as well as their impact on operational performance (Demeter ; Matyusz, 2011; Shah ; Ward, 2007; Pal ; Kachhwaha, 2013; Cudney ; Elrod, 2011; Cua, McKone ; Schroeder, 2001; Corbett ; Klassen, 2006). Fewer studies investigate the implementation of the lean concept in the supply chain and identify the most important tools and techniques that carry out the objectives of the lean concept in the supply chain. The study by Onyango (2014) among state corporations in the health ministry connects LSCM and organization performance with workplace organization taking the biggest effect while problem solving showed the lowest effect on the firms studied. Research of Azagedan et al. (2013) has found that the environmental uncertainty affects lean operations and lean purchasing practices. As a result, intricate atmospheres make it hard to detect, diagnose and respond to hitches.
Mutual interactions between lean practices and supply chain integration across the supply chain network were previously studied, but no studies were found that described the conditions for lean adoption and integration within an intricate pharmaceutical network.
1.3 Major objective
This research intends to determine ways to effectively implement lean practices and evaluate the supply chain performance of Pharmaceutical companies in Kenya.
This research endeavors to answer:
1) Which are the most important tools and techniques that carry out the objectives of the lean practices in the supply chain of the pharmaceutical industry?
2) What are the appropriate connections and circumstances for the extension of lean practices across the supply chain in the pharmaceutical industry in Kenya?
1.4 Specific Research objectives
The study will be guided by the following objectives:
1) To identify the most important tools and techniques that carry out the objectives of the lean practices in the supply chain of the pharmaceutical industry.
2) To evaluate the appropriate connections and circumstances for the extension of lean practices across the supply chain in the pharmaceutical industry in Kenya.
1.5 Value of the Study
Pharmaceutical manufacturers: this study will provide industry policy makers and managers with valuable information regarding manufacturing.
Other organizations: organizational policy makers and managers with benefit with valuable information regarding lean practices in manufacturing emanating from the findings of this study.
Academicians and practitioners: It is expected to add more knowledge in field of supply chain management and therefore scholars are to benefit from this.
CHAPTER ONE: INTRODUCTION