Logistics analytics

• Provide an overview of the strengths and weaknesses of NextPharma’s decision to go for option 3 (20 marks)
• Identify the key stakeholders and the key issues facing NextPharma management in implementing this decision (20)
• Outline a plan for implementing the change that addresses the key issues and considers all stakeholders (20)
• Presentation structure & style, clarity & content, and handling of questions (20)

The Penicillin Problem | Case Study

Regulation in the Pharmaceutical industry is constantly developing and shortly after 2000 it became necessary for NextPharma to have all its production of beta-lactam antibiotics (cephalosporins and penicillins) segregated from the production of other non-beta-lactam products. Cephalosporins, which represented a significant business for NextPharma, had already been segregated in 1999 through the construction of a separate facility,but penicillins had not been.

The reason separation is required is because of the risk of cross contamination between penicillins and non penicillins which might result in a patient with a severe allergy to penicillins inadvertently being exposed to a penicillin product. Individuals with a penicillin
allergy can die if they are exposed to the drug, even in small quantities.

NextPharma and its predecessor companies had for many years manufactured penicillins on the upper floor of a two story production and packaging manufacturing facility in Göttingen in Germany. This arrangement had satisfied regulators and customers for years as “separation” was maintained through “overpressure” on all access points to the penicillin plant ensuring that penicillin dust remained inside the penicillin area.

As a result of ever tightening regulations and increasing focus on patient safety by its customers, the company knew that it was only a matter of time before it would have to separate the production of penicillins and non penicillins in its Göttingen plant.
Key financial information for the year ending 2001:

€ 000’s Non-Penicillins Penicillins Total
Sales 15,000 8,000 23,000
EBITDA 1,800 1,200 3,000
EBITDA% 12% 15% 13%

NextPharma considered it had three options:

1. Cease production of penicillins at Göttingen

2. Sell its penicillin business to another Contract Manufacturer who had a fully independent penicillin manufacturing facility

3. Buy or build a separate penicillin facility that would enable the existing business to be transferred to the new facility

Having decided to follow option three and after some difficult on/off negotiations, NextPharma successfully bought a penicillins plant in Berlin, some three hours away from its Göttingen plant.

This facility already had some €12 million of sales so the addition of the NextPharma business would create a business with almost double the sales, in addition the Berlin plant had some spare capacity. The transfer of the production from Göttingen to Berlin
would solve all of the regulatory problems facing the company.

The successful transfer of the business from Göttingen to Berlin did, however, leave NextPharma with an empty floor in their facility in Göttingen.

Last Updated on June 28, 2021