ResearchSpotlight LNSresearch

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2013 LNS Research. All Rights Reserved
May 2013
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Because of the industrys
close relation to
consumer health and
well-being, organizations
competing in life sciences
have a unique set of
hurdles around quality,
risk, and Environment,
Health, and Safety
(EH&S). The effective
management and
optimization of these
areas have proven
difficult for a number of reasons, most notably from a lack of long-term, strategic
vision around quality decisions. Many organizations today are faced with the
challenge of disparate enterprise solutions and business processes and the
resulting inability to communicate and collaborate on a unified information
management system.
Leveraging the emerging technology, Enterprise Quality Management Software
(EQMS), market leaders in the life sciences industry are more effectively infusing
quality, risk, and EH&S with processes across the value chain. The common
platform delivered by EQMS is enabling a closed-loop quality environment that has
previously been very difficult to achieve. This new wave of cross-functional
interaction on quality content and process data has changed the way many
organizations look at and manage the quality of products and processes.
This LNS Research Spotlight will help executives on the quality journey understand
the framework for building this holistic quality platform, empowering them to
strengthen their existing strategies. Specifically, it will cover the following areas:
An overview of the life sciences industry
Benchmark data: executive objectives and focus points
The importance of building closed-loop quality processes
Developing a unified information management system with Enterprise
Quality Management Software
Realizing success in quality, risk, and EH&S through the LNS Research
Operational Excellence Framework
Actionable recommendations and key takeaways
Research Spotlight

Integrating Quality, Risk, and EH&S in the
Life Sciences Industry
This new wave of
cross-functional
interaction on quality
content and process
data has changed the
way many
organizations look at
managing quality.

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Research Spotlight
Integrating Qual ity, Risk, and EH&S in the Life Sciences Industry
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An Overview of the Life Sciences Industry
Broken down, life sciences is actually an umbrella term for many subverticals, each
of which faces varying degrees of industry challenges. These subverticals include
pharmaceuticals, medical devices, biotechnology, and blood and biologics. Taken
a step further, each of these subverticals has more specific niche markets. Due to
the innovative nature of the industry, company sizes range from generously funded
startups through large global brand names. For this reason, the industry is also
highly acquisitive.
Amid a complex web of global competitors, life sciences companies face a number
of pressures around innovation, quality, and compliance. In addition to the task of
ensuring the health and well-being of consumers, companies within the industry
have to balance these pressures with the continuous need to reduce costs for
consumers while improving operating margins. Accordingly, success in the industry
requires a near seamless set of processes supported by a robust portfolio of
integrated IT applications.
The section below will provide a deep dive into the industrys most pressing
challenges and market drivers.
Challenges and Market Drivers
Growth: Life sciences organizations heavily focus on how strategic
decisions will impact growth. It is often a combination of acquisition and
innovation that drives growth, which makes the new product introduction
(NPI) process a focal point for many companies. While organizations
require a strong IT infrastructure to effectively coordinate product
development, this can be a challenge in an acquisitive growth environment,
often resulting in disconnected applications. Other growth-related factors
surround decisions to expand into cost-effective developing nations,
identifying new delivery models, and utilizing venture capital, all while
balancing core focuses of delivering safe and effective products.
Globalizing Economy: In addition to the life sciences industry, there is a
general shift toward industries leveraging the global supplier network.
Although this can be beneficial to operating margins, it introduces
considerable operational risk in the areas of product safety, quality, and
compliance. As organizations continue to utilize the global supplier network,
traditional manual methods for recordkeeping are becoming obsolete. As a
consequence, many large life sciences companies are working to improve
traceability capabilities. At a time where it is becoming strategically optimal
to make use of developing nations many of which that have lower quality
standards strong traceability capabilities are becoming a standard.
"Life Sciences" is
actually an umbrella
term for a number of
industries, each of
which faces varying
degrees of industry
challenges. These
include:
Biotechnology
Blood and
biologics
Medical Devices
Pharmaceuticals

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Data Granularity and Visibility: The lack of visibility born by increasingly
obsolete manual processes as well as disconnected IT architectures is
creating a concern in the realm of operational risk. Without a proper
assessment and investment in traceability capabilities, life sciences
organizations are open to product safety issues, less effective product
recalls, and issues associated with counterfeiting. Not only are traceability
capabilities and the need for more data granularity impacting strategic
decisions, their close relation with health and safety is central to changes
transpiring in the regulatory environment. Because of the potential for an
adverse event in the life sciences industry, both public and private attention
is quick to focus on quality, compliance, and traceability capabilities.
Compliance and Regulations: A challenge life sciences organizations
have with compliance and standards is not only abiding by them, but also
not being bogged down in recordkeeping and the release of products
because of compliance issues. It is critical for companies to be able to
quickly and effectively comply with Good Manufacturing Practices (GMP),
Electronic Batch Records, Electronic Device History Records, and Title 21
CFR Part 11 regulations. Regulatory bodies continuously search for ways
to improve consumer safety and well-being, and this effort can be catalyzed
by the incidence of an adverse event that affects public health. Increasing
compliance complexities are affecting the ability to keep up with changes to
training and SOPs, traceability initiatives, investments in document control
systems and other IT capabilities, and interactions with and reliance on the
global supplier network.
Collaboration: The need for quick and effective NPI cycles as well as the
ability to deliver high quality products has made collaboration capabilities a
competitive advantage in the life sciences industry. For growth purposes,
many companies are working to put more drugs through the pipe. As a
result, collaboration with other organizations that may also be competitors
is becoming more common, which is creating challenges with controlling
intellectual property (IP) and maintaining compliance. Companies are
assessing and investing in collaboration technologies to reduce these risks.
Additionally, in many respects, collaboration has been facilitated by the
consumerization of IT, but it is accompanied by a lack of control in
regulated environments. Although this is an emerging area, it is quickly
gaining regulatory attention.
Benchmark Data: Executive Objectives and Focus Points
To properly gauge the challenges around quality, risk, and EH&S both current
and emerging in life sciences, it is beneficial to view executive focus points
specific to the industry in relation to other industries. The LNS Research 2012-
Life sciences
challenges and
market drivers:
Growth
Globalizing
Economy
Data Granularity
and Visibility
Compliance
Collaboration

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Research Spotlight
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2013 Quality Management Survey was taken by over 400 executives, of which
over 80 came from leading medical devices, pharmaceutical manufacturing,
biotechnology, and other organizations. It asked a number of questions pertaining
to the financial, operational, and quality objectives companies were focusing on in
this past year.
Top Financial Objectives
In a majority of companies across all industries, growing revenue was a financial
priority. This number was accentuated in the medical devices industry, where
nearly 60% of organizations placed it as the top financial objective.
Interestingly, in pharmaceutical manufacturing where profitability is often a main
factor for strategic decisions, 30% of companies listed growing operating margins
as a top financial objective. Also standing out from the aggregated response rate,
both pharmaceutical manufacturing organizations and medical device companies
noted that expanding into global markets was a top priority. This supports the
industrys increased focus on smaller volume drugs and global suppliers and
customers, and goes hand in hand with increased investments in quality, risk, and
EH&S capabilities.

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Top Operational Objectives
In contrast to the aggregated responses across industries, manufacturing efficiency
is not the main operational objective for pharmaceutical manufacturing
organizations. Rather, ensuring operations are in compliance is the top objective
for this industry, which is followed closely by improving customer service.

While improving operating margins was a top financial objective for pharmaceutical
manufacturers, the low response rate for improving manufacturing efficiency
highlights the precedence of compliance in pharmaceutical manufacturing. For the
medical devices industry, there is a relatively even split for financial objectives
between manufacturing efficiency, compliance, and customer service, all hovering
around 25%.
Top Quality Management Objectives
Executives were asked a question regarding their top quality management
objectives in 2012. They were given a number of choices that spanned across
quality management strategy and the areas of people, processes, technology, and
metrics. Despite its high response rate for pharmaceutical manufacturing, reducing
the cost of quality is not an overwhelmingly high priority for life sciences
organizations.

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Organizations from different industries had a diverse set of responses for this
survey question. Though, separate from the aggregated response rate, the high
response rates for managing operational risk and ensuring compliance stand out
as relatively unique quality management objectives for life sciences organizations.
Compliance and operational risks are not only top quality management objectives,
the effective management of those areas is a main challenge for the industry.
The following section will provide a deeper look into the IT resources and tools
organizations are utilizing to overcome these challenges and make measurable
progress toward objectives.
Building Closed-Loop Quality Management Capabilities
When it comes to quality management, advancements in technology capabilities
have shed light on the inefficiencies of traditional approaches to ensuring the
quality of products and processes across the value chain. Many organizations have
built quality capabilities on a need-by-need or targeted basis, rather than with a
long-term strategic vision for a centralized system that supports seamless
communication and collaboration. In other cases, M&A activities have created a
similar scenario with the conjoining of varying applications.

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The Extended Value Chain

The resulting portfolio of disparate systems and business processes has left many
life sciences organizations with a lack of visibility into performance, compliance,
and risk across the value chain. In a large life sciences organization, these
systems and processes may be included within a combination of the following
technologies. In many cases, for the reasons described above, there is not often a
single instance of the listed technologies.
ERP Financial data, inventory data, production routings, recipe
management
BI Reporting, analytics, visibility
CRM Customer complaints, trade promotions
PLM Labeling management, packaging management, quality
specifications, sampling plans
LIMS Measurements and testing of fats, solids, bacteria counts, etc.
MOM In-line and at-line testing, statistical process control, manufacturing
nonconformances
SCM Supplier risk scorecards, delivery scheduling, inspection
EH&S Carbon management, energy management, reporting
To effectively
mitigate risk and
manage quality and
EH&S, life sciences
need a strong
platform for
communication and
collaboration across
the value chain that
enables closed-loop
processes.

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This implementation of diverse and typically not integrated IT applications to
manage quality and operations has made it nearly impossible to collaborate and
communicate across departments, trading partners, and the supply chain.
Additionally, this disconnect has caused quality and nonconformance data as well
as best practices and training materials to remain localized as opposed to shared
across the enterprise. Market leaders have come to understand the source of
these inefficiencies and have begun investing in what is known today as closed-
loop quality management.
Closed-loop quality management is the concept of creating feedback loops
between different functional areas across the value chain. It requires the utilization
of quality process data and content from the enterprise technologies previously
listed. In relation to the graphic of the value chain, as a product flows downstream
through design and manufacturing to service, it is critical to create a closed-loop
environment, relaying information upstream to improve the quality of processes
originating closer to the product development process.
Realizing the need for global communication and collaboration on quality data and
content, many organizations are investing in a unified quality management platform
that interconnects quality, risk, and EH&S. Increasingly, EQMS is acting as this
platform.
Enterprise Quality Management Software
EQMS is an emerging software category with 20% of life sciences companies
surveyed currently using the software and a very impressive 25% of companies
planning on making an investment over the next year.
Enterprise Quality Management Software Adoption
Closed-loop quality
management is the
concept of creating
feedback loops
between different
functional areas
across the value
chain. It requires the
utilization of quality
process data and
content from
enterprise
technologies.

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With so many life sciences companies currently evaluating EQMS it is quickly
becoming viewed as a critical platform for communication and collaboration that
standardizes, centralizes, and streamlines quality process, data, and content.
Through the use of automation and integration with other enterprise IT
applications, it facilitates both the management and commonly the reduction of
operational risk as well as instances of internal and external quality deviations.
Offering a wide variety of functionalities, EQMS can be beneficial to life sciences
organizations interested in standardizing quality processes across the enterprise.
While some quality, risk, or EH&S processes may be more advantageous when
managed locally, there are others that provide considerable benefits when
managed globally. EQMS functionalities are integral to the holistic management of
quality and are typically implemented after an assessment to identify where global
synergies exist for processes standardized across the enterprise.
EQMS: Unified Information Management System for Quality

EQMS is a platform
for communication
and collaboration on
quality process data
and content. It
standardizes,
streamlines, and
centralizes
traditionally manual
quality management
processes.

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EQMS as a Platform for Risk and EH&S Management
Based on current capabilities and technology gaps, each organization will take a
unique approach to building a unified information management system around
quality, often implementing several of the listed functionalities as the enterprise
standard. The imperative of ensuring compliance and reducing operational risk in
the life sciences industry shapes a strong case for the need to manage quality,
risk, and EH&S holistically.
Unfortunately most companies that have adopted EQMS have not necessarily
gone beyond the adoption of NC/CAPA and Document Control. Although both of
these capabilities help mitigate risk and ensure compliance, they do not provide the
needed content or process automation to explicitly manage risk or EH&S. As
shown in the below figure, the adoption of risk management tools in the life
sciences is still very low and one of the least adopted functionalities of a traditional
quality management system.
Adoption of EQMS Functionality

For those companies that have deployed EH&S as part of EQMS, there are many
synergies around processes and technologies that can provide value. The
processes around managing incidents and corrective actions for quality issues
translate very nicely to managing people, product, or asset issues regarding
environmental impact or other sustainability issues. More often the challenges for
The imperative of
ensuring compliance
and reducing
operational risk in
the life sciences
industry shapes a
strong case for the
need to manage
quality, risk, and
EH&S holistically.

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EH&S come with including the right EH&S content within the system regarding
regulations, standards, or company data to effectively use the established
processes.
For those companies that have deployed risk management as part of EQMS, the
benefits are more often seen as enhancing and extending many of the processes
that already exist. Common examples of where risk management capabilities
extend or enhance existing EQMS capabilities include: being able to incorporate
risk in decisions for prioritizing CAPAs, focusing on the right supplier management
issues, prioritizing GMP compliance and audit management activities, reacting to
customer complaints, or planning for future warranty management issues.
This differs slightly from the EH&S case where companies use many of the same
processes but add new EH&S content. Traditional risk management processes
include steps for risk identification, assessment, quantification, prioritization, and
mitigation. Although the process steps themselves seem simple, the challenge is
deploying these processes across the enterprise in a standardized way. This helps
certify that the view of risk across the business is using a common language and
measuring stick as well as effectively managing many different types of risk within
this framework, including quality, safety, environmental, financial, regulatory, and
commercial.
It should also be noted that very similar risk management tools may go by different
names but largely perform similar functions. Examples of these different tools
include: Risk Register, Failure Modes and Effects Analysis, Decision Tree,
HACCP, Bowtie, and Risk Register.
Realizing Success in Quality, Risk, and EH&S through
Operational Excellence
Often the success of any initiative, software or otherwise, depends on the
approach of leadership and managing change in an effective way. This is
especially true when trying to bring together an integrated quality, risk, and EH&S
solution for a life sciences company. Life sciences companies are inherently
resistant to change, conservative, and risk adverse. In fact often just discussing the
presence of existing risk can be off-putting to some executives. To help manage
these challenges and ensure the success of initiatives, companies should focus on
leveraging a model of operational excellence.
Operational excellence aims to provide a framework for organizations to align and
then optimize key resources of people, processes, and technology to make
measurable progress toward strategic objectives. Although the steps to building
this framework may vary by industry, there is a core set of steps companies can
take to building it by focusing on people and leadership, business processes, IT
infrastructure, and a set of supporting metrics.
The impact of
integrated quality,
risk, and EH&S on a
life sciences
company can be
much more
significant when built
into the LNS
Research Model of
Operational
Excellence. The
model aims to help
organizations
optimize three key
areas:
People and
leadership
Business
Processes
Technology
Architecture

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People and Leadership: The effective management of quality, risk, and
EH&S requires executive buy-in that trickles down and throughout the
enterprise. Executives should not only support this initiative, they should
promote it as an organizational imperative for success. When these areas
are a leadership focal point, other employees are more likely to get on
board and help drive cultural change. Ideally, the impact to quality, risk, and
EH&S should be considered with the decisions each employee makes.
Business Processes: While the growth nature of the life sciences industry
is often the culprit of disconnected processes and applications, companies
should work to overcome this by standardizing and centralizing data and
workflows where possible. The establishment of formal quality, risk, and
EH&S processes across business units, divisions, and regions is critical to
achieving a closed-loop quality management environment.
Technology Architecture: To reduce risk, improve quality and truly benefit
from closed-loop quality processes, a unified information management
system is needed. EQMS provides the holistic approach that life sciences
organizations need to achieve this, integrating quality across the value
chain and encouraging cross-functional communication and collaboration.
With EQMS, executives can monitor quality, risk, and EH&S in real-time.
Metrics: Any good operational excellence model should have a metrics
program to monitor progress toward strategic objectives. For the life
sciences industry, companies focused on risk, quality, and EH&S should
consider measuring the cost of quality, products in compliance, overall
equipment effectiveness, first pass yield, complete and on-time shipments,
and a number of others depending on specific business activities. In many
cases, EQMS can help to streamline these metrics directly to the
dashboard in real-time.
LNS Research provides advisory and benchmarking services to help Line-of-
Business, IT, and Industrial Automation executives make critical business
and operational decisions. LNS research focuses on providing insights into
the key business processes, metrics, and technologies adopted in industrial
operations.

Authors:
Matthew Littlefield, President and Principal Analyst,
matthew.littlefield@lnsresearch.com
Mike Roberts, Research Associate,
mike.roberts@lnsresearch.com
The distribution of this report has been
funded by EtQ Software:

www.etq.com

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