eli lilly case

eli lilly case - TEAM 2 Caitlin Vodopia Tyler Johnson...

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TEAM 2 – Caitlin Vodopia, Tyler Johnson, Charlie Nomides, Hyun Kim Eli Lilly and Company: The Flexible Facility Decision Eli Lilly is one of the biggest drug manufacturers in the world and has been successful with breakthrough drugs such as Prozac. Now, with three new drugs on the horizon to being released, Alfatine, Betazine, and Clorazine, Steve Mueller, manager of strategic facilities planning, is faced with a choice of whether to build a new specialized facility for these drugs or a new flexible facility. Whatever Mueller decided, it had to be in line with the company’s new goals set by management: to increase product speed to market by 50% and reduce manufacturing costs by 25%. When making this strategic decision, Eli Lilly must keep in mind how the pharmaceutical industry has been changing over the past few years. Recently, changes included diminishing pricing flexibility of the drugs, a slowing rate of new drug creation, and more substitutes from brand name competitors and generic competitors had been increasing. Industry analysts predicted the manufacturing costs of drugs to increase from 10% in the early ‘80s to 60% in the year 2000. This was in part because of the use of more complex compounds in the drugs themselves, and the more complex machinery it took to manufacture them, along with more time to manufacture. A second reason for increased manufacturing costs is the under utilization of manufacturing facilities in the early and late stages of the product life cycle. Plants had to be built to provide enough capacity when market demand was highest, but before and after the demand peak plants were grossly underutilized. Thirdly, manufacturing costs were increasing because the government added stringent regulations requiring companies to tighten down on their pollution, increasing costs. These three increases in manufacturing costs played a part in diminished pricing flexibility, but another important factor was the buying power that HMOs held. HMOs were increasing pharmaceutical purchases to almost as much as 64% of total pharmaceutical purchases and this was expected to increase to 75% by 1995. By buying in bulk they were able to demand lower prices, with discounts amounting to as much as 60%. All of this greatly reduced flexibility in pricing. Another recent change in the pharmaceutical industry involved expenditures for R&D and the return of new products it was generating. R&D expenditures had increased by $10 billion in the past 18 years, yet the amount of new drugs that reached market had only risen slightly. This lower return on investment is something that Eli Lilly should take careful note of. A final change in the pharmaceutical industry is brand name competitors coming out with similar products in less time, and generic product substitutes becoming quickly available after patents run out. Historically, pharmaceutical companies who came out with a new drug had five to six
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This note was uploaded on 01/25/2011 for the course MGT 3510 taught by Professor Staff during the Spring '08 term at Georgia Tech.

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eli lilly case - TEAM 2 Caitlin Vodopia Tyler Johnson...

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