The Semiconductor Industry: A Role Model for the Pharmaceutical Industry?

In today's competitive business environment, pharmaceutical manufacturers must increase efficiency. Corporate leaders have recognized that operational challenges such as inventory and cost reduction, cycle time enhancements, improved delivery consistency, and schedule adherence are imperative issues that must be addressed. The question is how.

Rafi Maslaton

Pharmaceutical companies may be able to find some answers in the semiconductor industry. Although these industries differ in many ways, they have important commonalities. Like the pharmaceutical industry, the semiconductor industry is a highly capital-intensive industry that has enjoyed high margins and profitability with double-digit growth. Both industries also are expanding their manufacturing to the Asia Pacific region, and facing similar supply chain, labor pool, and language challenges in the process.

One business practice that semiconductor companies have been perfecting is outsourcing. Semiconductor companies were driven by cost, risk mitigation, and tax incentives to outsource most of their manufacturing capabilities rather than build additional capacity, and contract manufacturing has rapidly replaced in-house operations. This practice has become so common that the industry coined the term fabless to define a company that designs and sells chips but does not fabricate them. By contracting chip manufacturing to a third party, the fabless company can focus in-house resources on research and development and sales and marketing.

The semiconductor industry also has learned how to manage the risk of protecting its technology and intellectual property, how to optimize its supply chain, and how to apply advanced information systems to address some of the challenges they face. For example, with advanced web-enabled technology, one fabless company located in Allentown, Pennsylvania, can change the priority and due date of certain lots, and its contract manufacturer in Singapore immediately will see a revised schedule generated at each of its work centers. This technology provides the company with the flexibility to respond quickly to customers' needs, thus significantly improving customer service and reducing inventory. For the pharma industry, such a system could allow for immediate changes in prioritizing items such as sample analysis at quality control laboratories, product runs in manufacturing suites and packaging lines, and investigations and corrective and protective actions.

During the past decade, the semiconductor industry also has introduced in-line controls and measurement tools to reduce processing and equipment variations. For example, incorporating thickness measurement devices into polishing equipment allows the process to stop at the exact desired specifications for every single product. The pharmaceutical industry has begun to adopt this technique, as leading companies make significant progress in applying process analytical technologies.

Another best practice is using automatic material-handling systems and automated guided-vehicle systems, in which a process can run almost without human intervention. The pharmaceutical industry also could learn from many other semiconductor industry best practices related to manufacturing execution systems; predictive maintenance; effective project management to reduce cost and lead time in building new sites; methodologies for cleanroom control, supply chain management, and daily operational excellence; and shut-down practices.

In summary, despite the obvious differences, the pharmaceutical industry can leverage best practices that have been demonstrated in the extremely competitive semiconductor market. Perhaps this process can begin through the existing collaboration between chip manufacturing and medical device companies.

Rafi Maslaton is the president of cResults,3 Executive Dr., 2nd Floor, Somerset, NJ 08873 tel.732.748.1990, ext. 250, fax 732.748.1993, rmaslaton@cresultsconsulting.com