Eli Lilly
Case Context
Set in 1993, the case focuses on a difficult decision faced by Steve Mueller, manager of strategic facilities and planning at Eli Lilly, about the type of manufacturing facility to construct for the three new pharmaceutical products that the company plans to launch in 1996. A number of growing industry and company specific conditions have made this decision particularly relevant and have sparked debate with management and throughout the company. In response to these conditions, Lilly management decided to establish a set of company-wide goals that focused on improving time to market for its products in development and a reduction of manufacturing costs. Specifically, these goals were:
1. Reduced new product time to market by 50% from the current 8 -12 year process
2. Reduce the cost of manufacturing by (25%)
The key to achieving these goals was Mueller’s decision of what kind of manufacturing facilities should be used to produce the new products. This equated to a debate between a strategy of “specialized” manufacturing plant which had worked well for Lilly in the past, and a proposed strategy of building “flexible” manufacturing facilities that could accommodate almost any of the company’s new products. It was required that whichever facilities strategy chosen must align with the two company goals listed above.
Our Recommendation
Based on our analysis of the situation and the assumptions outlined in this report, we recommend that Steve Mueller decide to implement a version of the Flexible & Specialized hybrid system that was proposed under Option 2 in the case. This would entail building multiple Flexible facilities that would serve as “launch plants” to produce the new drugs in the company’s pipeline, as well as complementary specialized facilities to handle high growth drugs that exceeded flexible plant capacity. Our analysis showed that the Flexible hybrid option has the following advantages:
Higher NPV
Improved Speed to Market =
Set in 1993, the case focuses on a difficult decision faced by Steve Mueller, manager of strategic facilities and planning at Eli Lilly, about the type of manufacturing facility to construct for the three new pharmaceutical products that the company plans to launch in 1996. A number of growing industry and company specific conditions have made this decision particularly relevant and have sparked debate with management and throughout the company. In response to these conditions, Lilly management decided to establish a set of company-wide goals that focused on improving time to market for its products in development and a reduction of manufacturing costs. Specifically, these goals were:
1. Reduced new product time to market by 50% from the current 8 -12 year process
2. Reduce the cost of manufacturing by (25%)
The key to achieving these goals was Mueller’s decision of what kind of manufacturing facilities should be used to produce the new products. This equated to a debate between a strategy of “specialized” manufacturing plant which had worked well for Lilly in the past, and a proposed strategy of building “flexible” manufacturing facilities that could accommodate almost any of the company’s new products. It was required that whichever facilities strategy chosen must align with the two company goals listed above.
Our Recommendation
Based on our analysis of the situation and the assumptions outlined in this report, we recommend that Steve Mueller decide to implement a version of the Flexible & Specialized hybrid system that was proposed under Option 2 in the case. This would entail building multiple Flexible facilities that would serve as “launch plants” to produce the new drugs in the company’s pipeline, as well as complementary specialized facilities to handle high growth drugs that exceeded flexible plant capacity. Our analysis showed that the Flexible hybrid option has the following advantages:
Higher NPV
Improved Speed to Market =