Quality as the Foundation for Excellence - Insights from the Pharmaceutical Industry

DISSERTATION
of the University of St. Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor of Philosophy in Management

submitted by

Christian Mänder

from

Germany

Approved on the application of

Prof. Dr. Thomas Friedli

and

Prof. Dr. Wolfgang Stölzle

Dissertation no. 4541

Difo-Druck GmbH, Bamberg 2016

The University of St.Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein expressed.

St. Gallen, May 30, 2016

The President:

Prof. Dr. Thomas Bieger

DANKSAGUNG
Die vorliegende Dissertation entstand während meiner Zeit am Bereich für
Produktionsmanagement des Instituts für Technologiemanagement der Universität
St. Gallen. Als Gruppenmitglied des Operational Excellence Teams in den Jahren
2013 und 2014 sowie als Gruppenkoordinator desselben Kompetenzzentrums bis
2016 konnte ich zahlreiche Erfahrungen im Projektmanagement sammeln und diverse
Einblicke in die Managementaktivitäten verschiedenster Unternehmen gewinnen.
Das Hauptaugenmerk meiner Tätigkeiten lag auf dem pharmazeutischen Bereich. Die
gesammelten Erfahrungen in Industrieprojekten und der enge Austausch mit anderen
Forschungseinrichtungen dienten als Grundlage für meine Dissertation. Insbesondere
die Zusammenarbeit mit einem multinationalen Pharmakonzern ermöglichte mir die
praktische Validierung meiner Arbeit.
Ein Dissertationsvorhaben gestaltet sich nicht immer einfach und bedarf deshalb
eines gesunden sozialen und kollegialen Umfelds. Aus diesem Grund möchte ich
mich nachfolgend herzlich bei meiner Familie und meinen Kollegen bedanken.
Ich danke meinen Eltern Inge und Jürgen für ihr Verständnis während der
schwierigen Phasen meiner Dissertation und ihren konsequenten Glauben an mich.
Ein ganz besonderer Dank geht an meine Partnerin Jasmin, die stets an meiner Seite
stand und mich während jeder Phase meiner Dissertation bedingungslos unterstützt
und motiviert hat.
Ein weiterer Dank geht an die Person, die mir die Möglichkeit zur Promotion gegeben
hat. Ich danke meinem Doktorvater Herr Prof. Dr. Thomas Friedli für seine
wertvollen Anmerkungen im Rahmen meiner Dissertation. Zudem verdanke ich ihm
die Möglichkeit, an unzähligen internationalen Managementworkshops und
Konferenzen teilzunehmen. Er hat mich bei Diskussionen unterstützt und war stets
ein Befürworter meiner Tätigkeiten am Bereich für Produktionsmanagement.
Ein weiterer Dank geht an Herrn Prof. Dr. Wolfgang Stölzle, der mit seinem Co-
Referat und seinen wertvollen Inputs während seiner Doktorandenseminare einen
signifikanten Beitrag zu dieser Arbeit geleistet hat.
Nicht zuletzt danke ich meinen Freunden, Kollegen, studentischen Hilfskräften,
Bacheloranden und Masteranden, die mich in meinem Leben und während meiner
Zeit als Doktorand begleitet haben und denen ich, unabhängig von der Arbeit, schöne
Momente zu verdanken habe.

St.Gallen im Februar 2016 Christian Mänder

II
ABSTRACT
The changes in production environment in today’s pharmaceutical industry are a
challenge for almost every pharmaceutical company. With the increase in the global
demand of drugs through demographic change and the medicine demand of emerging
countries, the required quantity of pharmaceuticals will increase significantly in
upcoming years.
The industry struggles with the dual problem of drug shortages – which have
quadrupled in recent years – and an increasing number of drug recalls.
In general, regulatory pressure and current regulatory changes are forcing the
pharmaceutical industry to develop a stable quality oriented production system.
Thus, in the increasingly complex environment of the pharmaceutical industry,
companies need to take a closer look at their quality organisation in order to stabilise
their internal production system and increase their flexibility and overall
performance.
Due to this need, the research focuses on the investigation of the interdependencies
of quality and excellence to leverage the advantages of both.
Operational Excellence (OPEX), as an initiative and lived as a philosophy, leads to a
better performance, more efficient use of resources and continuous improvement.
Quality management approaches have a positive impact on quality, innovation and
the overall performance.
Even though well-known excellence models include quality as basic element, the
examples from practice show that the pharmaceutical industry discusses these aspects
self-sufficiently. The divide of quality and excellence is not a conceptual problem but
an industry-made challenge.
Based on an extensive literature review, a statistical evaluation, a benchmarking and
a qualitative case study analysis, the thesis designs a descriptive model that builds the
basis to structure an internal quality management system for pharmaceutical
companies, using a systemic approach combining quality and excellence. In addition,
the thesis introduces a powerful quality metric to measure the improvements, trends
and performance concerning quality and its impact on the overall OPEX performance
of pharmaceutical production sites.

III
ZUSAMMENFASSUNG
Die Veränderungen des Produktionsumfeldes in der heutigen Pharmaindustrie stellen
für nahezu jedes Unternehmen in dieser Branche eine Herausforderung dar. Das
Wachstum der globalen Nachfrage von Medikamenten infolge des demographischen
Wandels sowie der steigende Verbrauch aufgrund der besseren medizinischen
Versorgung in den Schwellenländern, werden in den nächsten Jahren zu einem
steigenden Bedarf an Pharmazeutika führen.
Die Branche kämpft mit einer Vervierfachung von Lieferengpässen und einer
wachsenden Zahl von Arzneimittelrückrufen.
Steigender regulatorischer Druck und Veränderungen zwingen die Pharma-
unternehmen, ein stabiles und qualitätsorientiertes Produktionssystem zu entwickeln.
Im immer komplexer werdenden Umfeld der Pharmaindustrie müssen Unternehmen
somit einen genauen Blick auf ihre Qualitätsorganisation werfen, um ihre internen
Produktionssysteme zu stabilisieren und ihre Flexibilität und Leistungsfähigkeit zu
erhöhen.
Aufgrund dieser Bedürfnisse fokussiert sich diese Arbeit auf die Untersuchung der
Zusammenhänge von Qualität und operativer Exzellenz, um die Vorteile beider
wirksam einzusetzen.
Operative Exzellenz (OPEX) als Unternehmensleitbild und Philosophie führt zu einer
Leistungssteigerung, weniger Verschwendung und einer kontinuierlichen
Verbesserung. Qualitätsmanagement Ansätze haben einen positiven Einfluss auf die
Qualitäts-, Innovations- und gesamte Unternehmensleistung.
Obwohl bekannte Exzellenz Modelle Qualität als Grundelement führen, zeigen
Beispiele aus der Praxis, dass in der Pharmaindustrie diese Aspekte oft unabhängig
voneinander betrachtet werden. Die Spaltung von Qualität und Exzellenz ist somit
kein konzeptionelles Problem, sondern gängige Praxis.
Basierend auf einer umfangreichen Literaturrecherche, einer statistischen
Auswertung, einer Benchmarking- und einer qualitative Fallstudienanalyse entwirft
die Dissertation ein Beschreibungsmodell. Dieses Modell bildet eine Architektur, die
als Grundlage eines Qualitätsmanagementsystems für die Pharmaindustrie dienen
kann und verknüpft Qualität mit Exzellenz mit Hilfe des Systemansatzes. Darüber
hinaus stellt die vorliegende Arbeit eine wirkungsvolle Qualitätsmetrik vor, die
Verbesserungen, Trends und die Leistung von Qualität und deren Auswirkungen auf
die gesamte OPEX Performance von pharmazeutischen Produktionsstätten
beschreibt.

IV
 CONTENT

CONTENT

LIST OF FIGURES ............................................................................................ VIII

LIST OF TABLES ................................................................................................ XII

LIST OF ABBREVIATIONS ............................................................................ XIII

1 INTRODUCTION ............................................................................................... 1
1.1 RESEARCH MOTIVATION .................................................................................. 1
1.1.1 RESEARCH INTEREST ....................................................................................... 1
1.1.2 PRACTICAL RELEVANCE .................................................................................. 2
1.2 RESEARCH QUESTION ....................................................................................... 9
1.3 RESEARCH DESIGN ............................................................................................ 9
1.3.1 CONCEPTUAL BACKGROUND ........................................................................... 9
1.3.2 RESEARCH THEORY ....................................................................................... 10
1.3.3 FRAME OF REFERENCE ................................................................................... 12
1.3.4 RESEARCH METHODOLOGY ........................................................................... 13
1.4 THESIS STRUCTURE ......................................................................................... 17

2 RESEARCH STATUS ...................................................................................... 19

2.1 OPERATIONAL EXCELLENCE .......................................................................... 19
2.1.1 TOYOTA PRODUCTION SYSTEM ..................................................................... 19
2.1.2 WORLD-CLASS MANUFACTURING ................................................................. 21
2.1.3 LEAN MANUFACTURING ................................................................................ 22
2.1.4 CONTINUOUS IMPROVEMENT ......................................................................... 24
2.2 OPERATIONAL EXCELLENCE IN THE PHARMACEUTICAL INDUSTRY ........... 25
2.2.1 EVOLUTION OF OPEX IN THE PHARMACEUTICAL INDUSTRY ........................ 26
2.2.2 ST.GALLEN OPERATIONAL EXCELLENCE MODEL .......................................... 26
2.3 QUALITY MANAGEMENT ................................................................................ 28
2.3.1 EVOLUTION OF TOTAL QUALITY MANAGEMENT .......................................... 28
2.3.2 QUALITY MANAGEMENT CULTURE ............................................................... 31
2.3.3 QUALITY MANAGEMENT AS COMPETITIVE ADVANTAGE.............................. 33
2.3.4 20TH CENTURY OF QUALITY MANAGEMENT .................................................. 33

V
CONTENT

2.4 QUALITY MANAGEMENT IN THE PHARMACEUTICAL INDUSTRY ................. 36

2.4.1 ISO 9000 SERIES OF STANDARDS .................................................................. 37
2.4.2 ICH Q10 – PHARMACEUTICAL QUALITY SYSTEM (PQS) .............................. 40
2.4.3 QUALITY METRICS......................................................................................... 43
2.4.4 QUALITY METRICS IN THE PHARMACEUTICAL INDUSTRY ............................. 46

3 THE ST.GALLEN QUALITY SYSTEM MODEL ....................................... 52

3.1 DESIGN OF THE ST.GALLEN QUALITY SYSTEM MODEL ............................... 52
3.2 ELEMENTS OF THE ST.GALLEN QUALITY SYSTEM MODEL ......................... 53
3.2.1 LITERATURE REVIEW ..................................................................................... 53
3.2.2 THE ST.GALLEN QUALITY SYSTEM MODEL .................................................. 55
3.3 SUMMARY ........................................................................................................ 56

4 THE ST.GALLEN QUALITY SYSTEM ANALYSIS .................................. 57

4.1 DATA GATHERING AND DATASET .................................................................. 57
4.2 THE ST.GALLEN QUALITY METRIC ............................................................... 59
4.2.1 QUALITY COMPLIANCE .................................................................................. 63
4.2.2 QUALITY EFFECTIVENESS .............................................................................. 64
4.2.3 QUALITY EFFICIENCY .................................................................................... 66
4.2.4 QUALITY ENGAGEMENT ................................................................................ 67
4.2.5 ST.GALLEN OPEX PERFORMANCE ................................................................ 70
4.2.6 SUMMARY AND CONCLUSION ........................................................................ 72
4.3 PATH ANALYSIS: ST.GALLEN QUALITY METRIC EVALUATION ................... 73
4.3.1 INTRODUCTION – PATH ANALYSIS ................................................................ 73
4.3.2 STATISTICAL ANALYSIS ................................................................................. 74
4.3.3 SUMMARY AND CONCLUSIONS ...................................................................... 98
4.4 ST.GALLEN QUALITY BENCHMARKING....................................................... 102
4.4.1 INTRODUCTION ............................................................................................ 102
4.4.2 DATA EVALUATION ...................................................................................... 102
4.4.3 BENCHMARKING RESULTS ........................................................................... 103
4.4.4 SUMMARY AND CONCLUSION ...................................................................... 114

5 APPLICABILITY OF THE QUALITY SYSTEM ANALYSIS ................. 115

5.1 CASE STUDY METHODOLOGY ...................................................................... 115
5.1.1 CASE STUDY DESIGN ................................................................................... 115
5.1.2 CASE SELECTION ......................................................................................... 117

VI
 CONTENT

5.2 CASE STUDIES ................................................................................................ 118

5.2.1 INTRODUCTION ............................................................................................ 118
5.2.2 STRUCTURE OF THE CASE STUDIES.............................................................. 119
5.2.3 CASE A......................................................................................................... 122
5.2.4 CASE B ......................................................................................................... 128
5.2.5 CASE C ......................................................................................................... 135

6 CROSS-CASE ANALYSIS AND IMPLICATIONS ................................... 143

6.1 CROSS-CASE COMPARISON .......................................................................... 143
6.1.1 APPLICATION OF THE QUALITY SYSTEM MODEL ........................................ 143
6.1.2 COMPARISON QUALITY METRICS SCORE – COMPLIANCE SCORE ............... 151
6.1.3 COMPARISON QUALITY METRICS SCORE – OPEX PERFORMANCE ............. 152
6.2 MANAGEMENT IMPLICATIONS FROM THE CROSS-CASE ANALYSIS .......... 153

7 CONCLUSION AND OUTLOOK ................................................................ 155

7.1 SUMMARY OF RESULTS ................................................................................. 155
7.2 CONTRIBUTION TO THEORY ......................................................................... 157
7.3 CONTRIBUTION TO PRACTICE ...................................................................... 158
7.4 LIMITATIONS AND FURTHER RESEARCH ..................................................... 158

8 REFERENCES ................................................................................................ 160

9 APPENDIX ...................................................................................................... 178

9.1 ST.GALLEN OPEX BENCHMARKING QUESTIONNAIRE .............................. 178
9.2 PATH ANALYSIS RESULTS ............................................................................. 203
9.3 ST.GALLEN QUALITY BENCHMARKING REPORT ........................................ 257

VII
LIST OF FIGURES

LIST OF FIGURES
FIG. 1: GEOGRAPHIC CIRCULATION OF MEDICINE SPENDING AND GROWTH RATE
FROM 2013 TO 2018 (IMS, 2014) ........................................................................ 3

FIG. 2: PRIMARY REASONS FOR DRUG SHORTAGES IN 2012 (FDA, 2013) ................... 4
FIG. 3: OVERVIEW OF PREVENTED AND NEW DRUG SHORTAGES – OVERALL AND FOR
INJECTABLE (FDA, 2013) .................................................................................... 4

FIG. 4: NUMBER OF QUALITY-RELATED RECALLS FROM 2006 TO 2013 (WALDRON ET

AL., 2014) ............................................................................................................ 6

FIG. 5: RESOURCE-BASED VIEW; CONCEPTUAL MODEL (BARNEY, 1991).................. 12

FIG. 6: FRAME OF REFERENCE ................................................................................... 13
FIG. 7: RESEARCH PROCESS AS AN ITERATIVE LEARNING PROCESS (KUBICEK, 1977;
TOMCZAK, 1992) ............................................................................................... 14
FIG. 8: TOYOTA PRODUCTION SYSTEM (LIKER, 2004) .............................................. 21
FIG. 9: ST.GALLEN OPEX MODEL (FRIEDLI ET AL., 2006) ....................................... 27
FIG. 10: EFQM MODEL OF EXCELLENCE (EFQM, 2013)........................................... 34
FIG. 11: MALCOLM BALDRIGE MODEL FROM THE MALCOLM BALDRIGE NATIONAL
QUALITY AWARD (NIST, 2006) ........................................................................ 35
FIG: 12: TOP 10 COUNTRIES FOR ISO 9001 CERTIFICATES (PRIEDE, 2012) ............... 38
FIG. 13: NUMBER OF ISSUED ISO 9001 CERTIFICATES FROM 1993 TO 2010 (PRIEDE,
2012) ................................................................................................................. 39
FIG. 14: ICH Q10 PHARMACEUTICAL QUALITY SYSTEM MODEL (INTERNATIONAL
CONFERENCE ON HARMONISATION, 2008) ....................................................... 42
FIG. 15: DESIGN PHASE OF THE QUALITY SYSTEM MODEL – OVERVIEW OF DATA
SOURCES ............................................................................................................ 52

FIG. 16: THE INTEGRATED ST.GALLEN QUALITY SYSTEM MODEL FOR THE
PHARMACEUTICAL INDUSTRY ........................................................................... 56

FIG. 17: OVERVIEW OF THE ST.GALLEN OPEX DATABASE ...................................... 57

FIG. 18: OVERVIEW OF DATASET USED TO EVALUATE THE QUALITY METRICS ......... 59
FIG. 19: PERSPECTIVES ON THE DESIGN PHASE OF THE ST.GALLEN QUALITY METRIC
.......................................................................................................................... 61

VIII
 LIST OF FIGURES

FIG. 20: TECHNICAL SUB-SYSTEM OF THE ST.GALLEN OPEX MODEL (FRIEDLI ET AL.,
2013, FRIEDLI ET AL., 2006, 2006; KICKUTH, 2005) ......................................... 70
FIG. 21: CRITICAL VALUES FOR THE KOLMOGOROV-SMIRNOV TEST (LILLIEFORS,
1967) ................................................................................................................. 76
FIG. 22: HISTOGRAM OF OPEX PERFORMANCE ........................................................ 77
FIG. 23: P-P PLOT OF OPEX PERFORMANCE ............................................................. 77
FIG. 24: THE KOLMOGOROV-SMIRNOV TEST – OPEX PERFORMANCE ..................... 78
FIG. 25: SCATTER PLOTS OF THE DEPENDENT AND INDEPENDENT VARIABLES ......... 80
FIG. 26: REGRESSION OF THE RESIDUALS ON THE Y-AXIS AND THE REGRESSION OF
THE DEPENDENT VARIABLE (“OPEX PERFORMANCE”) ON THE X-AXIS ............ 81

FIG. 27: RESULTS OF THE DURBIN-WATSON TEST .................................................... 82

FIG. 28: DURBIN-WATSON STATISTIC FOR 1% SIGNIFICANCE POINTS (SAVIN
AND WHITE, 1977) ............................................................................................ 83

FIG. 29: SPSS COLLINEARITY STATISTICS ................................................................. 84

FIG. 30: LIST AND ORDER WITHIN THE ST.GALLEN QUALITY METRIC....................... 86
FIG. 31: CORRELATION MATRIX ENABLER CATEGORY FOR CONTINUOUS
IMPROVEMENT ................................................................................................... 87

FIG. 32: CORRELATION MATRIX BETWEEN THE ST.GALLEN QUALITY METRIC AND
OPEX PERFORMANCE ....................................................................................... 88
FIG. 33: OPEX SCORE – QUALITY ENABLER – CONTINUOUS IMPROVEMENT PATH
DIAGRAM ........................................................................................................... 90

FIG. 34: REGRESSION FOR OPEX VS. QUALITY EFFECTIVENESS, EFFICIENCY,

ENABLER AND EMS PERFORMANCE .................................................................. 91

FIG. 35: REGRESSION FOR QUALITY ENABLER VS. MANAGEMENT COMMITMENT,

PREVENTIVE AND CONTINUOUS IMPROVEMENT ................................................ 92

FIG. 36: CORRELATION BETWEEN INDIVIDUAL CONTINUOUS IMPROVEMENT METRICS

.......................................................................................................................... 93
FIG. 37: CONTINUOUS IMPROVEMENT AND QUALITY ENABLER CORRELATION ........ 94
FIG. 38: QUALITY ENABLER AND OPEX SCORE CORRELATION ................................ 95
FIG. 39: BETA VALUES FOR THE DEPENDENT VARIABLE “CONTINUOUS
IMPROVEMENT” ................................................................................................. 96

IX
LIST OF FIGURES

FIG. 40: BETA VALUES FROM THE DEPENDENT VARIABLE “QUALITY ENABLER” ...... 96
FIG. 41: BETA VALUES FOR THE DEPENDENT VARIABLE “OPEX PERFORMANCE”.... 96
FIG. 42: SPECIFIED OPEX SCORE – QUALITY ENABLER, CONTINUOUS IMPROVEMENT
PATH DIAGRAM .................................................................................................. 97

FIG. 43: PATH ANALYSIS – QUALITY METRIC AND OPEX SCORE ............................. 99
FIG. 44: IMPACT OF QUALITY ON OPEX PERFORMANCE ......................................... 100
FIG. 45: EXAMPLE OF BENCHMARKING RESULTS VISUALISATION........................... 103
FIG. 46: QUALITY EFFECTIVENESS SCORE COMPARED TO THE EVALUATED DATASET
........................................................................................................................ 104
FIG. 47: QUALITY EFFECTIVENESS AND EFFICIENCY SCORES IN CORRELATION WITH
THE OPEX PERFORMANCE SCORE ................................................................... 105

FIG. 48: DATA VISUALISATION – QUALITY EFFECTIVENESS .................................... 107

FIG. 49: DATA VISUALISATION – COST STRUCTURE ................................................ 108
FIG. 50: DATA VISUALISATION – QUALITY ENABLER .............................................. 110
FIG. 51: DATA VISUALISATION – MANAGEMENT SYSTEM KPIS .............................. 110
FIG. 52: SITE-SPECIFIC QUALITY EFFECTIVENESS/EFFICIENCY AND OPEX
PERFORMANCE CORRELATION ......................................................................... 112

FIG. 53: SITE-SPECIFIC QUALITY EFFECTIVENESS/ENGAGEMENT AND OPEX

PERFORMANCE CORRELATION ......................................................................... 112

FIG. 54: SITE-SPECIFIC QUALITY EFFICIENCY/ENGAGEMENT AND OPEX

PERFORMANCE CORRELATION ......................................................................... 113

FIG. 55: SITE-SPECIFIC QUALITY PERFORMANCE/COMPLIANCE AND OPEX

PERFORMANCE CORRELATION ......................................................................... 113

FIG. 56: BASIC CASE STUDY DESIGN TYPES FOR SINGLE UNITS OF ANALYSIS
(ADAPTED FROM YIN, 2014) ............................................................................ 116
FIG. 57: MULTIPLE CASE STUDY PROCEDURE (ADAPTED FROM YIN, 2014) ............ 117
FIG. 58: STRUCTURE OF PHARMA INC. CASE STUDIES ............................................. 121
FIG. 59: OVERALL RESULT OF THE QUALITY EVALUATION OF THE ST.GALLEN
QUALITY EFFECTIVENESS AND EFFICIENCY SCORES AND PHARMA INC.’S
COMPLIANCE METRIC – SITE A ........................................................................ 127

X
 LIST OF FIGURES

FIG. 60: OVERALL RESULTS OF THE QUALITY EVALUATION OF THE ST.GALLEN

QUALITY EFFECTIVENESS AND EFFICIENCY SCORES AND PHARMA INC.’S
COMPLIANCE METRIC – SITE B ........................................................................ 134

FIG. 61 OVERALL RESULTS OF THE QUALITY EVALUATION OF THE ST.GALLEN

QUALITY EFFECTIVENESS AND EFFICIENCY SCORES AND PHARMA INC.’S
COMPLIANCE METRIC – SITE C ........................................................................ 141

FIG. 62: QUALITY MANAGEMENT SYSTEM MODEL – QUALITY ENABLER ................ 144
FIG. 63: QUALITY MANAGEMENT SYSTEM MODEL – MANAGEMENT SYSTEM
PERFORMANCE ................................................................................................ 146

FIG. 64: QUALITY MANAGEMENT SYSTEM MODEL – QUALITY EFFECTIVENESS ...... 148
FIG. 65: QUALITY MANAGEMENT SYSTEM MODEL – QUALITY EFFICIENCY ............ 149
FIG. 66: OVERALL RESULTS FOR COMPLIANCE AND QUALITY SCORE CORRELATION
........................................................................................................................ 150
FIG. 67: CROSS-CASE EVALUATION OF QUALITY METRICS AND COMPLIANCE SCORES
........................................................................................................................ 152
FIG. 68: CROSS-CASE EVALUATION OF QUALITY METRICS SCORE AND OPEX
PERFORMANCE ................................................................................................ 153

FIG. 69: ST.GALLEN QUALITY SYSTEM MODEL – OVERCOMING THE DIVIDE

BETWEEN QUALITY AND EXCELLENCE ............................................................ 154

FIG. 70: THE SAND CONE MODEL (FERDOWS AND MEYER, 1990) ........................... 157

XI
LIST OF TABLES

LIST OF TABLES
TABLE 1: OVERVIEW OF DRUGS AFFECTED BY SHORTAGES (LOFTUS, 2015; MÖCKLI,
2015) ................................................................................................................... 5
TABLE 2: MAIN RESEARCH QUESTION (MRQ) FOR THE THESIS .................................. 9
TABLE 3: CORE STATEMENTS OF THE RESOURCE-BASED VIEW (BARNEY, 1986B;
BARNEY, 1986A, 1991) ..................................................................................... 11
TABLE 4: CORE ELEMENTS OF THE INTEGRATED QUALITY APPROACH (SEGHEZZI ET
AL., 2013) .......................................................................................................... 31

TABLE 5: BENEFITS OF IMPLEMENTING QUALITY SYSTEMS (PRIEDE, 2012) ............. 37

TABLE 6: ELEMENTS OF THE ICH Q7 GMP GUIDELINE (INTERNATIONAL
CONFERENCE ON HARMONISATION, 2000) ....................................................... 40
TABLE 7: METRIC TO MEASURE INVENTORY AND QUALITY PERFORMANCE
(DAVIDSON ET AL., 2000).................................................................................. 44
TABLE 8: CATEGORIES AND SUB-CATEGORIES OF THE ST.GALLEN QUALITY METRIC
.......................................................................................................................... 62
TABLE 9: ST.GALLEN COMPLIANCE METRIC ............................................................. 64
TABLE 10: ST.GALLEN QUALITY EFFECTIVENESS METRIC (FRIEDLI ET AL., 2013) ... 66
TABLE 11: ST.GALLEN QUALITY EFFICIENCY METRIC (FRIEDLI ET AL., 2013) ......... 67
TABLE 12: ST.GALLEN QUALITY ENGAGEMENT METRIC........................................... 68
TABLE 13: ST.GALLEN QUALITY ENABLER METRIC (FRIEDLI ET AL., 2013) ............. 69
TABLE 14: ST.GALLEN SYSTEM PERFORMANCE METRIC (FRIEDLI ET AL., 2013) ...... 70
TABLE 15: THE ST.GALLEN OPEX PERFORMANCE METRIC (FRIEDLI ET AL., 2013) 71
TABLE 16: OVERVIEW OF RELEVANT LITERATURE USED FOR THE ST.GALLEN METRIC
.......................................................................................................................... 72
TABLE 17: OVERVIEW OF CORRELATION AND BETA VALUES FOR THE PATH EXTRACT
.......................................................................................................................... 97
TABLE 18: OVERVIEW OF PHARMA INC. CASE STUDIES .......................................... 119

XII
 LIST OF ABBREVIATIONS

LIST OF ABBREVIATIONS
AFME Africa and Middle East
API Active Pharmaceutical Ingredient
APQR Annual Product Quality Review
CAPA Corrective and Preventive Action
CI Continuous Improvement
CDER Center for Drug Evaluation and Research
cf. conferre
CGMP Current Good Manufacturing Practice
CWQC Company Wide Quality Control
DIT Dublin Institute of Technology
EFQM European Foundation of Quality Management
e.g. exempli gratia
EMS Effective Management System
et al. et alii
FDA Food and Drug Administration
FDASIA Food and Drug Administration Safety and
Innovation Act
ICH International Conference on Harmonization
ITEM Institute for Technology Management
ISO International Organization for Standardization
ISPE International Society for Pharmaceutical
Engineering
JIT Just in Time
LM Lean Management
LSS Lean Six Sigma
Mgmt. Management
MBNQA Malcolm Baldrige National Quality Award
MRQ Main Research Question
OEE Overall Equipment Effectiveness
OPEX Operational Excellence
OPQ Office of Pharmaceutical Quality

XIII
LIST OF ABBREVIATIONS

LIST OF ABBREVIATIONS
PRST Pharmaceutical Regulatory Science Team
PDA Parenteral Drug Association
PQS Pharmaceutical Quality System
RBV Resource Based View
SPC Statistical Process Control
TPM Total Productive Maintenance
TPS Toyota Production System
TQC Total Quality Control
TQM Total Quality Management
USD US Dollar
VIF Variance Inflation Factor
WCM World Class Manufacturing
QA Quality Assurance
QC Quality Control
QM Quality Management
QMS Quality Management System

XIV
 INTRODUCTION

1 Introduction

1.1 Research Motivation

1.1.1 Research Interest

Increasing regulatory pressure on quality performance in the pharmaceutical industry is a
challenge in today’s pharmaceutical production environment. In recent decades, the idea
of effective quality management has spread throughout the world. Many scholars have
tried to find ways to enhance production and customer performance using quality
management practices (Agus and Hassan, 2011).
There have been studies into the direct influence of quality management practices on
innovation, quality and overall firm performance (Kaynak, 2003; Prajogo and Sohal, 2003,
2006; Samson and Terziovski, 1999; Zehir, Ertosun, Zehir and Müceldilli, 2012).
Scholars have found ways to measure the success of quality management programmes and
have proposed dimensions for measuring quality performance. Some studies have tried to
link quality management with other practices such as Just in Time and Total Productive
Maintenance to achieve a high overall performance (Cua, McKone and Schroeder, 2001;
Flynn, Sakakibara and Schroeder, 1995; Garvin, 1987).
Quality work in the pharmaceutical industry is strongly influenced by regulatory standards
proposed by the responsible agencies. There is currently only limited research available
which looks at a comprehensive method of implementing quality initiatives and their
positive or negative impact on the overall results. Furthermore, the interdependencies of
individual quality initiatives have only been investigated in limited detail (Konecny and
Thun, 2011).
In addition, none of the proposed quality systems and guidelines follows systems thinking,
whereby the entire system is considered holistically. This systemic approach assumes that
an organisation is embedded in both a wider society and economy. Problems and special
circumstances are seen in their full complexity and are considered in their full context.
Single considerations are avoided and factors are not investigated in isolation. The context
and interrelation of all components within the system are sometimes hard to interpret or
monitor. Nevertheless, restricting this scope could lead to misplaced priorities and
suboptimal decision making. Therefore, the attentive management of those social systems
with adjustment of the necessary structures, programmes and practices helps to avoid
shortcomings. The University of St.Gallen’s approach to systems theory and cybernetics
has influenced the research in the understanding of excellence (Bleicher, 2011; Friedli,
2006; Ulrich, 1984; Ulrich and Krieg, 1974).

1
INTRODUCTION

With the following research thesis, the author aims to combine and extend existing
approaches that deal with quality management in the pharmaceutical industry, with the
goal of developing a meaningful, powerful and measurable quality system model for the
pharmaceutical industry. This study furthermore aims to propose a quality metric that can
be used by pharmaceutical companies to monitor their quality performance and identify
trends and changes in their operating systems. The thesis contributes to research
communities focusing on quality management systems and quality metrics in the
pharmaceutical industry.

1.1.2 Practical Relevance

This chapter discusses current trends and patterns in the pharmaceutical industry.
Specifically, globalisation, quality problems, regulatory pressure and regulatory
developments need to be considered in order to be fully prepared for the future of
pharmaceutical manufacturing.
Globalisation in the pharmaceutical industry
In 2014, global spending on medicine exceeded one trillion USD for the first time. In their
study into the “global use of medicines” The Institute for Healthcare Informatics predicts
global spending on medicine will reach almost 1.4 trillion USD in 2018 (IMS, 2014).
In 2018, people over 65 will account for almost 30 % of the global population. This
demographic change will be a core driver in the global demand for pharmaceuticals.
Population growth and improved access to healthcare in emerging countries will spur
further market growth. In China in particular the institute assumes a growth per capita
spending of over 70 % over the next five years (IMS, 2014).
Fig. 1 shows an overview of the geographic circulation of medicine spending and the
overall growth per region expected from 2013 to 2018 (IMS, 2014).
In this graph, the Asia region includes the following countries: China, India, Russia, the
Commonwealth of Independent States, South East Asia, Oceania and Japan. The AFME
region includes countries from Africa and the Middle East. Fig. 1 shows the growth rate
in USD and uses a constant exchange rate for its prediction (IMS, 2014).
In future, the pharmaceutical industry will face the challenge of losing exclusivity of its
products. This will not be as dramatic as when Lipitor, Plavix, Singular and Seroquel fell
off-patent in 2011-12; however, small molecule products with a value of 121 billion USD
will fall off-patent in the next 5 years (IMS, 2014).
The impact of generic producers will increase worldwide, except in North America, where
innovative launches and price increases will lower generic growth. Locally manufactured
generics will be a key source of affordable drugs, especially in the African market.
Generics will continue to be a key driver of global growth.

2
 INTRODUCTION

The overall growth in medicine will increase significantly in all regions, chiefly in North
America and Asia, where growth of more than 200bn USD is expected. By 2018,
worldwide medicine spending is expected to increase from 305 to 335bn USD, with
generics making up 50% of overall spending on average (35% Brand and 13% Other)
(IMS, 2014).

Fig. 1: Geographic circulation of medicine spending and growth rate from 2013 to 2018
(IMS, 2014)
Drug shortages
Drug shortages can pose a serious threat to public health, forcing doctors to use other,
potentially less-effective therapies. Drug shortages in general are becoming more frequent
and serious, having quadrupled from 60 cases in 2005 to more than 250 cases in 2011
(FDA, 2011; Kweder and Dill, 2013; Loftus, 2015).
In 2013, the FDA published a strategic plan to prevent drug shortages, based on the
realisation that drug shortages are mainly influenced by production disruption that causes
supply shortages. This statement is supported by a deeper case study analysis of 127 cases
that highlights that 43 % of overall drug shortages were caused by manufacturing quality
issues. Failures in product and/or facility quality are the primary factors that disrupt
manufacturing (FDA, 2011, 2013).
Fig. 2 shows an overview of the main reasons for drug shortages, published in the FDA
drug shortages prevention plan. Facility remediation efforts and product manufacturing
issues were the main quality-related reasons for drug shortages in 2012.

3
INTRODUCTION

Fig. 2: Primary reasons for drug shortages in 2012 (FDA, 2013)

With their strategic plan, the FDA proposed a way to prevent and mitigate drug shortages
(FDA, 2013).
Fig. 3 shows an overview of new and prevented shortages by dosage form from 2005 to
2012.

Fig. 3: Overview of prevented and new drug shortages – overall and for injectable
(FDA, 2013)
The implementation of the drug shortages prevention plan shows a significant positive
impact on the prevented number of shortages.
However, companies still need to find ways to further prevent drug shortages by applying
quality management systems that lead to stable equipment/facilities and high product
quality. (Loftus, 2015).

4
 INTRODUCTION

Table 1 provides an overview of drug public shortages from recent years:

Table 1: Overview of drugs affected by shortages (Loftus, 2015; Möckli, 2015)

Drug Producer Reason

Augmentin (antibiotic) GlaxoSmithKline Quality problem
Bacillus-Calmette-Guérin Sanofi, Merck & Co. Equipment problem,
(BCG, cancer treatment) Quality problem
Ketorolac (painkiller) Hospira Inc. Quality problem
Zosyn (antibiotic) Pfizer Inc. Unplanned
maintenance

In particular, the cost pressures of off-patent drugs affect drug shortages. Poorly
maintained facilities and low investment in equipment leads to quality problems in the
manufacturing facilities. In consequence, people need to wait for their life-saving
treatments. It is important to control the stability of production sites producing scarcer
drugs (Loftus, 2015; Möckli, 2015).
Quality-related problems in the pharmaceutical industry
Pharmaceutical companies have a major fear of product recalls and warning letters from
the FDA. Regulatory punishments are extremely expensive and can damage a company in
the long term. Priorities will instantly shift, negatively influencing company culture and
negatively affecting overall firm performance. The reputational damage that occurs cannot
be solved with any corrective action plan and remains with the company for a long time
(Rothrauff, 2013).
In Q3 of 2014, 21% of pharmaceutical manufactures faced two or more recalls and a total
of 84 pharmaceutical recalls were carried out (Stericycle, 2014).
Researchers from the Pharmaceutical Regulatory Science Team (PRST) of the Dublin
Institute of Technology (DIT) analysed the number of product recalls from 2006 to 2013
using the data from the FDA enforcement reports and warning letter databases. Only
quality-related recalls were considered in the evaluation. Fig. 4 reflects one of the results
from the study, showing a rising trend in the number of quality-related recalls (Waldron,
Greene and Calnan, 2014).

5
INTRODUCTION

Fig. 4: Number of quality-related recalls from 2006 to 2013 (Waldron et al., 2014)
Trends in the regulatory environment
For Margaret Hamburg, commissioner of the FDA, product quality is crucial for safety
and general effectiveness. She thinks there are too many quality issues in the
pharmaceutical industry. She sees these quality issues as a warning to do more and to
enhance the quality performance within the pharmaceutical industry. In her 2013 speech
to the Annual Meeting of the Generic Pharmaceutical Manufacturers she stated that the
FDA has chosen quality as one of their highest priorities (Hamburg, 2013).
The FDA, especially Janet Woodcock, Director of the Center of Drug Evaluation and
Research, states that the responsibility for high-quality manufacturing lies with the
pharmaceutical companies. She asserts that using shared quality management tools should
make a high manufacturing quality level achievable in the pharmaceutical sector. In her
paper, “Reliable drug quality: an unresolved problem”, she asks why the industry has not
reached this level yet. She claims it is time to analyse the root causes of the manufacturing
quality problems in the industry (Woodcock, 2012).
Therefore, Woodcock started a major reorganisation of the Center for Drug Evaluation
and Research (CDER), establishing an Office of Pharmaceutical Quality (OPQ) within the
organisation. Her statement that “Quality is the foundation for the success of everything
we do” clearly reflects her position. She states that quality systems are necessary to
proactively identify quality issues before they occur. Moreover, fast and lasting processes
for solving quality issues have to be established. The new organisation looks at drug
quality over the entire product lifecycle (Gaffney, 2012).
In 2014, the OPQ received final launch approval from the FDA. The focus on drug quality
will entail significant reorganisation at several levels of the FDA. The new “super-office”
at the FDA launched on 1st January 2015 (Gaffney, 2014).

6
 INTRODUCTION

Furthermore, in February 2013 the agency announced its intention to collect quality-
related performance indicators from the industry. The so-called quality metrics
programme was launched in response to the new requirements in Sections 705 and 706 of
the 2012 FDA Science and Innovation Act (FDASIA). The aim of the act is to enlarge the
FDA’s competences to prevent and mitigate drug shortages forcing a risked-based
inspection approach and requesting firms to provide data in advance or instead of
inspections (US Congress, 2012).
The requested metric will be used as a tool for the FDA to establish risk-based inspection
planning, since the FDA’s resources are limited (US Congress, 2012).
This announcement resulted in the submission of two white papers from ISPE and the
PDA: “ISPE Proposal for FDA Quality Metrics Program” and “Parenteral Drug
Association Points to Consider: Pharmaceutical Quality Metrics.” These white papers
were answered by publications from different workgroups in 2015 (ISPE, 2013; PDA,
2013).
In July, 2015 the agency produce a draft guidance, “Request for Quality Metrics”, that is
open for comments from the pharmaceutical industry. The guidance contains the agency’s
first ideas for establishing a risk-based quality metric to assess quality at both a product
and site level using a limited amount of analysed indicators (FDA, 2015).
The quality metrics initiative is controversial within organisations and many different
metrics have been proposed. However, none of them employs a system approach and they
mostly address lagging quality indicators. At the end of 2015, BioPharm International.com
published an overview of the responses from industry on the draft guidance from the FDA.
Most comments show concern from the industry about the proposed set of quality metrics.
In addition, peers raised the question of where internal responsibility lies within a company
regarding the reporting of quality metric results. In general, many areas of the draft
guidance are still very unclear. Sanofi is particularly critical, highlighting that the metric
itself has the potential to support the problem of shortages because companies may only
focus on the requested set of measures. The FDA’s metric still lacks a balanced, well-
defined set of metrics that can be used in an easy and comprehensive way (Hernandez,
2015).
As an example of a quality metric assessment, the researcher analysed a highly
sophisticated quality organisation evaluation from a global research driven pharmaceutical
company. However, the company compared the quality performance of their production
network per technology based on a single KPI level. This results in misleading
conclusions, which ignore site structural factors (e.g., production volume, location of
production site and so on).

7
INTRODUCTION

The company’s conclusions are based on the highest and lowest value of the specific KPI
of the specific element, with no overall consideration of the scores.
This example shows the importance of a balanced quality metric that reflects the context-
based performance of a production site and shows the impact of an integrated quality
approach considering multiple influencing parameters.
Conclusion
In summary, the practical relevance of this thesis lies in a reflection of challenges of the
pharmaceutical industry, based on globalisation, recalls and the current development of
the regulatory environment. An innovative quality system model will help companies be
prepared for these challenges in the coming years.
Thus, this thesis will develop a systems-based quality management system model
embedded within Operational Excellence (OPEX). Specifically, the aim of the thesis is to
provide a detailed analysis of the impact of quality-related indicators on the excellence
performance of a pharmaceutical production site to quantify the impact of quality on
excellence. The quality system model needs to be enhanced by a balanced quality metric
that identifies the influencing parameters on the elements of the quality system. An
appropriate quality metric supports managers identify the right improvement strategies to
increase a production site’s overall OPEX performance. The impact analysis of quality on
excellence needs to sensitise the industry to the importance of the integrated approach of
quality and provide insights into the influencing parameters of quality on the OPEX
performance of pharmaceutical production sites. In addition, the thesis will contribute to
current discussions about the FDA’s proposed quality metric.

8
 INTRODUCTION

1.2 Research Question

The first question to ask when starting a research project is what kind of question the
researcher wants to address. Defining research questions goes beyond simply specifying
the topic of the research; the questions need to address the scope of the core concept of the
research, the level of generalisation, the core features of the research and the units that will
be addressed by the research. To ease the process of formulating research questions, it
helps to answer the four questions: “What am I trying to explain?”, What are the
independent variables?”, Which variables will I explore?” and “What is the connection
between the presumed causes and the presumed effects?” (De Vaus, D. A, 2001; Punch,
2014; White, 2009).
This research sets out from the challenges of the pharmaceutical industry for achieving the
research ambition of investigating the impact of quality on the OPEX performance in
pharmaceutical production sites. Therefore, the thesis aims to answer one main research
question (MRQ), as shown in Table 2.

Table 2: Main research question (MRQ) for the thesis

MRQ: What is the impact of quality on the OPEX performance within the
pharmaceutical industry?

1.3 Research Design

1.3.1 Conceptual Background

Ulrich’s (1984) understanding of applied social science sees business administration as a
leadership and management theory. The theory deals with the problems of designing,
steering and developing purpose-directed complex social systems (Ulrich, 1984; Ulrich
and Hill, 1976).
This research thesis is based on Ulrich’s (1984) understanding of systems theory and
cybernetics. Thinking in systems requires a holistic deliberation of the entire system. The
complexity of the social system of a “company” is accepted and the standpoint of total
control is abandoned. Complex situations and problems are accepted and acknowledged
in their entire context. Individual factors are not considered in isolation and detrimental
definitions are avoided. Sometimes it is difficult to follow interrelations equally;
nevertheless, it is potentially dangerous or misleading to narrow one’s horizons when
approaching a problem. A holistic consideration of the complex and dynamic system is
necessary to connect and interrelate problems within the social system. The elements of a
system are dynamically related in time and can influence overall performance.

9
INTRODUCTION

No single element has the power to affect the entire system. (Ackoff, 1994; Beer, 1975;
Bleicher, 2011; Friedli, 2006; Ulrich, 1984; Ulrich and Krieg, 1974).
The idea behind this thesis comes from the unsolved problem of quality metrics in the
pharmaceutical industry and aims to create the knowledge need to solve this practical
problem through design approaches and changes to social reality. Research for this thesis
starts and ends in practice and theory is used to supply the required information. It is the
role of science to develop a design model that consists of descriptive and explanatory
elements (Kubicek, 1977; Ulrich, 1984).
Quality systems are based on a system understanding and can be explained by having a
holistic view of the interrelating elements of the system, as described above. An individual
element cannot reinforce the entire quality system and cannot improve quality
performance.
A descriptive model can help scholars and practitioners more easily understand the idea
of the developed concept. The elements of the model can be easily and understandably
visualised and the interrelation between the individual elements can be shown via
examples. Therefore, the St.Gallen method of systems understanding and the idea of
designing a descriptive model will support and strengthen this research project.

1.3.2 Research Theory

Quality management systems and quality metrics use resources to achieve a company’s
goals. Once an innovative quality management system is in place, a firm’s internal
resources can be used more effectively and efficiently, providing a competitive advantage.
Stable equipment and processes, along with highly qualified and trained employees, lead
to high quality performance and high overall firm performance. The company’s resources
must be used in a very specific, highly regulated environment that is effective within the
relevant field. This requires identifying the relevant measures from an enabling
perspective to countermand resource performance by implementing a measurable quality
system model that helps to sustain a firm’s competitive advantages. Identifying the right
quality dimensions, which addressing an appropriate set of enablers and performance
figures, needs to be valuable and non-substitutable to sustain the success of the identified
competitive advantages. In addition, the main research question aims to identify the impact
of quality-related resources such as competitive advantage on the OPEX performance of
a pharmaceutical production site. The system boundary is the pharmaceutical production
site itself, and the research is mainly guided by internal measurable factors. Therefore, the
resource-based view is an ideal way to anchor this thesis in theory and support the research
process in evaluating a comprehensive quality management system model for the
pharmaceutical industry. The following section reflects the key elements of the resource-
based view to show its conformity with the research conducted in this thesis.

10
 INTRODUCTION

The resource-based view (RBV) originates with the work of Selznick and Penrose in the
late 1950s. In the 1980s, Barney and Wernerfelt revived the RBV with their work, “A
Resource-based View of the Firm” (Barney, 1986b; Barney, 1986a, 1991; Penrose and
Pitelis, 2009; Selznick, 1984; Wernerfelt, 1984, 1995).
Following Wernerfelt (1984), the RBV is based on the relationship between resources,
competences and competitive priorities, with a focus on utilising internal resources. In his
1995 paper, Wernerfelt (1995) discusses how company culture is another factor that needs
to be considered as an internal resource. Penrose and Pitelis (2009) define internal
resources as equipment, knowledge and processes. Wernerfelt (1984) states that a firm’s
core resources are in-house knowledge of technology, employment of skilled employees,
machinery, efficient procedures and capital (Penrose and Pitelis, 2009; Wernerfelt, 1984,
1995).
Resources should allow companies to implement strategies to improve the overall
performance. Effective use of the resources mentioned above is essential for companies to
achieve a competitive advantage. These resources are also called an organisation’s
“competences”. The RBV, with its core competence approach, reduces an organisation’s
competences specific elements that can be repeatedly used to provide customers with the
greatest possible benefit (Amit and Schoemaker, Paul J. H., 1993; Barney, 1991; Friedli,
2006; Hamel and Prahalad, 1994; Penrose and Pitelis, 2009; Wernerfelt, 1984, 1995;
Wolf, 2011; Zahra and Das, 1993).
Table 3 summarises the main elements of the RBV, following Barney (1986a, b, 1991).

Table 3: Core statements of the resource-based view (Barney, 1986b; Barney, 1986a,
1991)

1) A firm can achieve competitive advantage by implementing a value-creating

strategy that none of its competitors is able to implement simultaneously
2) Strategically relevant resources are rare; therefore, a company needs an
extraordinary resource profile for their success
3) Competitive advantages must be sustained. This is achieved when other
companies fail to copy a company’s own competitive advantage
4) To achieve a sustainable competitive advantage, a firm’s resources need to
be valuable, rare, inimitable and non-substitutable
5) Resources are used in a specific environment and are only effective within
this context (Barney, 1986b; Barney, 1986a, 1991)

Those five statements summarise the core idea behind the RBV. They show how resources
reinforce a firm’s competitive advantage. They reflect how companies need to use their
core competences.

11
INTRODUCTION

They propose that resources can only be used effectively in their specific environment,
and that these resources must be inimitable and non-substitutable to unleash their full
potential. In general, all five statements support the notion that resources are the key for
any company to be competitive and successful (Barney, 1986b; Barney, 1986a, 1991;
Prahalad and Hamel, 1990; Wernerfelt, 1984, 1995).
The approach in this thesis of evaluating a quality system for the pharmaceutical industry
based on the available resources to create a competitive advantage is reflected in the
conceptual model by Barney (1991), shown in Fig. 5 (Barney, 1991).

Fig. 5: Resource-based view; conceptual model (Barney, 1991)

1.3.3 Frame of Reference

A frame of reference is an initial descriptive model that can be used as guidance to solve
a practical problem. It divides a complex research field into smaller sub-elements, showing
the interrelation of the different elements and helping to clarify the researcher’s objective.
It also facilitates communication with other researchers and practitioners (Kubicek, 1977;
Wolf, 2011).
The frame of reference should help the researcher systematically investigate the research
field. It helps systematise the research objective and leads to a better understanding of the
scientist’s perspective (Köhler, 1977; Kubicek, 1977).
The research framework is systematically developed over time and supports the process
of answering the research question. Formally, the frame of reference can be represented
with boxes and arrows that show the relations between the elements (Kubicek, 1977; Wolf,
2011).
Fig. 6 shows the frame of reference for this research proposal. The framework describes
the scope of this thesis and helps structure the main research ideas to more easily discuss
the research purpose with other scholars and practitioners. The main elements of the frame
of reference are quality and OPEX performance. The framework addresses the underlying
theory and main research question of the thesis. First, quality and its relevant resources
and competences is analysed to investigate the relevant quality dimensions from an enabler
and performance indicator perspective. This research begins by identifying factors which
influence quality. Next, the impact of quality on the OPEX performance is investigated.
This is visualised by an arrow from the quality element to the OPEX performance. Here,
the competitive advantage of both elements is central to the investigation.

12
 INTRODUCTION

The arrow reflects the main research question, which deals with the impact of quality on
OPEX performance. The frame of reference uses an iterative research approach that
reflects the underlying theory supported by the research question. This research uses the
mixed-methods approach to identify primary influencing resources and competences and
hence answer the main research question of how quality impacts the OPEX performance
of a pharmaceutical company. The research methodology is explained in chapter 1.3.4.

Fig. 6: Frame of reference

1.3.4 Research Methodology

This thesis uses the mixed-methods approach, which supports the research topic, the
research question and the underlying research theory. This thesis combines both
qualitative and quantitative research methods (Jick, 1979).
Campbell and Fiske (1959) began the discussion of using multiple methods to view a
phenomenon from various perspectives. The main focus of this thesis is on quantitative
and qualitative research approaches. Qualitative approaches, in general, answer “How”
and explanatory “What” questions, as opposed to the “How many?” and “How much?”
questions addressed by quantitative approaches. To tackle the complex research question,
a quantitative measurement tool will be used to analyse the numerical data that will help
evaluate the model. The qualitative verification supports the results of the quantitative
analysis and legitimizes the research findings (Campbell and Fiske, 1959; Jick, 1979;
Johnson and Onwuegbuzie, 2004; Lamnek, 2010; Punch, 2014; Yin, 2014).
The research design and research process are structured as an iterative learning process
where the researcher plays a central and active role in studying the phenomenon. The
research process combines systematic knowledge creation based on theoretical statements.
The iterative learning process augments the researcher’s theoretical and practical prior
knowledge with ongoing insights from practice (Kubicek, 1977).

13
INTRODUCTION

As the starting point for the iterative research process, the researcher needs to acquire an
understanding of the problem to pose the appropriate questions. By using empirical
quantitative and qualitative studies which are influenced by further practical problems and
practical phenomena, the researcher critically reflects, differentiates and abstracts the
findings to create theoretical knowledge and conclusions, one step at a time. The initial
questions are answered by collecting data. The core elements of the research process are
(1) the theoretical pre-understanding of the issue obtained by conducting a literature
review and preliminary interviews, (2) the real world questions, (3) the quantitative studies
and case studies influenced by practical problems and phenomena, (4) critical reflection
on the studies and (5) differentiation and abstraction of the findings. The theoretical
understanding is directly linked to both the quantitative study and case study element and
critical reflection on the theoretical understanding (Kubicek, 1977; Tomczak, 1992),
Fig. 7 shows the iterative learning process based on Kubicek (1977) and Tomczak (1992).

Fig. 7: Research process as an iterative learning process (Kubicek, 1977; Tomczak,

1992)
To better understand the research process, the chosen research methods will now be
explained more in detail.
Literature review
The literature review is conducted via desk research on the relevant research streams that
influence the phenomena at hand. The literature analysis focuses on accurate description
of the research object. Reflecting on the research status aims to identify the interrelation
between the addressed elements and the results implications that lead to the identified
theoretical relevance of the research and the research question (Mayring, 2002; Punch,
2014).

14
 INTRODUCTION

Preliminary interviews
Initial interviews are conducted with scholars, regulatory agents and managers from the
pharmaceutical industry who are involved in current discussions of the phenomenon of
quality management in the pharmaceutical industry to get a feeling for their thoughts about
the connection between OPEX and quality. This research project will employ semi-
structured/standardised interviews to collect data (Flick, 2006).
Qualitative Research – Focus Groups and Interviews
Given insufficient knowledge of a phenomenon, qualitative research is an appropriate and
powerful method to collect data and gain knowledge on the issue. Interviews allow the
research object to be understood from a holistic point of view while keeping the research
process iterative (Flick, 2006).
In this thesis, focus groups and interviews are used as primary methods of qualitative data
collection. The focus groups have a deep knowledge of the topic and are involved in
quality discussions. The interaction between the groups is helpful structuring research,
defining priorities and as a source of data. The data was collected in workshops where
output was recorded and evaluated. This data was used to design interview schedules and
questionnaires. Focus groups were used in combination with other methods. For example,
interviews help test and evaluate the current state of research. At a certain point, focus
groups help validate and confirm the outcome of the research (Flick, 2006; Morgan, 1997).
For this research project, interaction with three major focus groups was used to generate
and validate data. One discussion was conducted in the regular meetings of the global
St.Gallen OPEX research group, which has global leaders of the pharmaceutical industry
among its members. The current research topics of the ITEM-PM are discussed in these
meeting. Another focus group was hosted in collaboration with the Dublin Institute of
Technology (DIT) to discuss how quality metrics for the pharmaceutical industry could be
designed. The last focus group was the St.Gallen Operational Excellence Roadshow.
During different global meetings, current research results are discussed in a workshop
series.
Furthermore, the research was presented to the ISPE Annual Meeting in Las Vegas, to the
ISPE/PQRI/FDA Quality Manufacturing conference in Washington, to the PDA Europe
Annual Meeting in Vienna, to the FDA/PQRI conference in Maryland, to the Cell World
conference in San Francisco and to the ISPE Europe Annual Meeting.
Expert interviews were used to collect further data, compare knowledge between different
experts and further specify the conducted research. Expert interviews are a specific form
of semi-structured/standardised interviews (Flick, 2006; Meuser and Nagel, 1991).

15
INTRODUCTION

Quantitative research
Quantitative research collects data, notably numerical data, which is analysed via
mathematical methods. This data is collected via surveys whose outcome is used to design
the qualitative research (Aliaga and Gunderson, 1999).
In this research project, key performance indicators (KPIs) and quality-related enablers
were collected to validate performance and design a suitable quality system model for the
pharmaceutical industry. Moreover, the link between the quality system performance and
overall OPEX performance was investigated via mathematical methods.
Qualitative research – Case studies
To get an in-depth understanding of the context, this thesis discusses the complexity of
natural setting in case studies (Punch, 2014).
Case studies are used to consider complex social phenomena from a holistic point of view.
They are based on the proposed constructs investigated in theory and previous research.
The use of multiple cases increases the robustness and replicability of the developed
theory. There are different approaches to analysing multiple cases (Eisenhardt, 1989;
Gerring, 2004; Yin, 1981; Yin, 2014).
The thesis uses the cross-case analysis proposed by Yin (2014), looking at the collected
data in different ways. Categories and dimensions related to the research topic are selected
to investigate group similarities and differences (Yin, 1981; Yin, 2014).
First, the individual cases are analysed systematically and the results consolidated.
Furthermore, the previously defined categories and dimensions are discussed throughout
each case to come to an overall conclusion and identify patterns. This procedure allows a
gradual validation and refinement of the proposed constructs (Yin, 1981; Yin, 2014).
The thesis selects different cases to discuss the proposed quality system model and test the
proposed quality metric based on an industry collaborated research project conducted
between May 2015 and December 2015. For this project, the researcher was in constant
exchange with representatives from a global pharmaceutical company.
Critical reflection and alignment of the research results
In the final step, the results of the quantitative and qualitative research are consolidated
and aligned. The outcome of the case studies is used to finalise the management
implications of the research. The goal of this thesis is to introduce a descriptive quality
management model for the pharmaceutical industry. This step concludes the research
process and follows Ulrich’s approach that research should start and finish in practice
(Ulrich, 1984).

16
 INTRODUCTION

1.4 Thesis Structure

Chapter 1 – Introduction
The first chapter introduces the research motivation, covering the theoretical and practical
relevance of the research topic. The chapter also introduces the research question and the
underlying research design, discussing the conceptual background, research theory, frame
of reference and the research methodology.

Chapter 2 – Research Status

The second chapter discusses the relevant literature streams which influence the research
topic. It systematically outlines the main literature of the thesis and investigates the
interdependencies between the various literature streams. Each section concludes with
summarised implications for the thesis.

Chapter 3 – The St.Gallen Quality System Model

The third chapter deals with the design and development of the St.Gallen Quality System
model. First, the relevant literature is further detailed to identify the elements of the quality
system model. Second, the chapter summarises the literature body and introduces the
St.Gallen quality system model. The chapter closes with a summary of the main purpose
of the model.

Chapter 4 – The St.Gallen Quality System Analysis

Chapter 4 introduces the underlying dataset used for the quality system evaluation. Next,
the St.Gallen quality metric is developed based on a detailed evaluation of the literature
body introduced in Chapter 2. Based on this metric, a statistical analysis is conducted that
evaluates the impact of quality on OPEX. In addition, the St.Gallen quality benchmarking
study is introduced to evaluate and further prove the impact of quality on OPEX using an
industry comparison based on the underlying dataset.

Chapter 5 –Applicability of the Quality System Analysis

Chapter 5 challenges the quality system model and quality system analysis using three
real-world case studies conducted as part of a collaborated research project with an
international pharmaceutical company. First, the case study methodology is detailed and
the case selection is argued using a literature reflection. Second, the three cases are
examined against the elements of the St.Gallen quality system model.

17
INTRODUCTION

Chapter 6 – Cross-Case Analysis and Implications

In Chapter 6, all three cases are compared using the St.Gallen quality system model. The
relevant literature is revisited to further sustain the implications derived from the
individual categories. The cross-case analysis is used to validate the impact of quality on
compliance and the impact of quality on OPEX performance. The chapter closes with a
summary of management implications and a generalisation of the model derived from the
cross-case investigation.

Chapter 7 – Conclusion and Outlook

Chapter 7 concludes the thesis with a summary of the results and a reflection on the
contribution to theory and practice. The chapter also reflects on the limitations of the thesis
and provides recommendations for further research.

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 RESEARCH STATUS

2 Research Status
The following sections will discuss the relevant literature streams. Chapter 2.1 begins by
looking at the history and core elements of Operational Excellence.
Chapter 2.2 reflects the current research status of OPEX in the pharmaceutical industry
and introduces the St.Gallen OPEX model.
Section 2.3 details the history of Total Quality Management, the mandatory requisites of
an effective quality management implementation, the power of quality management and
two quality management related models.
Chapter 2.4 provides an overview of two most widely used and state-of-the-art quality
management systems to reflect the current status of commonly applied systems.
In addition, the chapter introduces the current research status of quality metrics and gives
an overview of the pharmaceutical quality metrics discussion and its implications.

2.1 Operational Excellence

“We are what we repeatedly do.
Excellence, then, is not an act, but a habit.”
Aristotle

Hayes and Wheelwright set the starting point for the systematic discussion of OPEX with
their notion Japanese production systems are the key to competing through manufacturing
(Drucker, 1971; Friedli and Schuh, 2012).
Therefore, the following will explains the history of the Toyota Production System, the
evolution of World Class Manufacturing, Lean Manufacturing and Continuous
Improvement as elements of modern OPEX approaches.

2.1.1 Toyota Production System

“The most effective way to improve productivity
is to eliminate work.”
Unknown

Production was always the main competitive advantage for Japanese companies. The main
idea behind the Japanese production system is eliminating waste across all processes (Ōno,
1988).

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The Toyota Production System (TPS) is particularly famous. The TPS was founded by
Toyoda Sakichi and was further developed by his son, Toyoda Kiichiro, the founder of the
Toyota Motor Corporation (Liker, 2004).
The TPS is based on uninterrupted work flows, standardised work, direct links between
suppliers and customers and continuous improvement (Spear and Bowen, 1999).
The first publication about the TPS was written by Sugimori in 1977, followed by Taichi
Ohno, who supported the implementation of TPS within Toyota, in 1988 (Ōno, 1988;
Sugimori, Kusunoki, Cho and Uchikawa, 1977).
The most precise descriptions of the TPS were provided by early Japanese authors such as
Sugimori and Ohno (Shah and Ward, 2007).
The TPS is usually depicted as a house, which symbolises the stability of the entire
production system. Only when the foundation, pillars and roof are strong, the entire
building is stable. The model varies in practice, but in general the message is the same.
It starts with the roof, which symbolises the goals of best quality, lowest cost, shortest lead
time, highest safety and high morals. The two outer pillars of TPS symbolise just-in-time
production (JIT) and Jidoka. JIT is often used as a synonym for lean production, with the
idea of continuously identifying and removing sources of waste.
JIT increases production flexibility without increasing inventories. Production is shifted
from push to pull, with production only starting to produce a product once it is requested.
Jidoka requires that no defect shall ever be passed to the next station, which also frees
people from automation. In the centre of the house we find people, waste reduction and
teamwork with the idea of continuous improvement.
The foundation of the TPS has several elements, such as standardised and stable processes,
visual management, corporate philosophy and Heijunka. Heijunka involves levelling the
production schedule to keep the system stable. This happens in terms of both volume and
variety. Continuous improvement plays a key part in TPS, with the aim being to
continuously improve all processes by involving all available resources (Liker, 2004;
Nicholas, 2011; Spear and Bowen, 1999).

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Fig. 8 shows the TPS house as described above.

Fig. 8: Toyota Production System (Liker, 2004)

2.1.2 World-class Manufacturing

“If you need a new process and don’t install it,
you pay for it without getting it.”
Ken Stork

Based on the prosperity of the Japanese production system, the World Class
Manufacturing (WCM) scheme was launched, with the goal of identifying the aspects for
success of efficacious companies. Hayes and Wheelwright identified many competitive
priorities, which they extrapolated to specific dimensions which companies should focus
on to meet their goals. The authors also state that companies must have production systems
in place that supports their overall strategy. This idea of focusing on specific dimensions
to achieve competitive advantage was shared by many authors and widely discussed
(Friedli and Schuh, 2012; Porter, 2008; Wheelwright and Hayes, 1985).
The six dimensions identified by Hayes and Wheelwright (1985) are: workforce
participation, skills, and capabilities, rebuilding manufacturing engineering, competing
through quality, management technical competence, and incremental improvement
approaches (Friedli and Schuh, 2012; Wheelwright and Hayes, 1985).

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Schonberger (1982, 1986, 2007) added three key approaches to the WCM discussion:
continuous improvement, Total Quality Management (TQM) and for the first time, JIT
(Schonberger, 1982, 1986; Schonberger, 2007).
This approach was supported by Flynn et al. (1997, 1999), who claimed that a supporting
infrastructure for quality management and JIT are key elements of WCM (Flynn,
Schroeder and Flynn, 1999; Flynn, Schroeder, Flynn, Sakabibara and Bates, 1997).
Hall (1987) started to use the term “manufacturing excellence” which he defined as a
system consisting of JIT production, employee involvement, standardised tools and
production equipment, supplier integration and design for manufacturability (Hall, 1987).

2.1.3 Lean Manufacturing

“Lean is not a program; it is a total strategy.”
Alex Miller

In the 1990s, the discussion surrounding WCM changed to the most cited and most famous
approach: lean manufacturing. Womack et.al. (1991) are the primary founders of lean
manufacturing with their study “The machine that changed the world”. The core elements
of their lean manufacturing approach are teamwork, communication, elimination of waste,
efficient use of resources and continuous improvement (Friedli and Schuh, 2012; Holweg,
2007; Womack, Jones and Roos, 1991).
The primary objective of lean manufacturing is to eliminate waste throughout the
company. This is described as a competitive advantage in lean production systems
(Holweg, 2007; Krafcik, 1988b; Shah and Ward, 2003).
The lean journey can be divided into five phases: the discovery phase (1970-1990), the
dissemination phase (1991-1996), the implementation phase (1997-2000), the enterprise
phase (2001-2005) and the performance phase (2006-2009). In the discovery phase, the
1973 oil crisis aroused companies’ interest in Japanese methods. During the dissemination
phase, TQM and JIT started to be used in US manufacturing. In the implementation phase,
lean thinking was employed as a strategic component. In the enterprise phase, value stream
methods started to be used throughout the whole manufacturing sector. Finally, the
performance phase addressed measuring leanness and human and cultural factors (Stone,
2012).
In general, lean comprises the components of TPM, TQM, JIT and human and strategy-
orientated practices. The primary goal of TPM is to secure equipment stability. TQM is a
quality approach that aims to continuously improve product and process quality. TQM
secures the stability of processes by continuously improving products and processes and
gradually involving employees, customers and suppliers.

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The main goal of JIT is to reduce all kinds of waste. Human and strategy-orientated
practices focus on leadership, training philosophy (cross-functional) and employee
involvement (Cua et al., 2001; Nakajima, 1988).
Since the publication of “Decoding the DNA of the Toyota Production System”,
management and cultural factors have increasingly been the focus of discussions (Spear
and Bowen, 1999).
The implementation of lean significantly affected the working environment.
Standardisation, continuous learning and training, discipline, empowerment and
multiskilling were all crucial to the success of lean (Spear and Bowen, 1999).
Gibbons et al. (2012) introduced the eighth kind of waste: waste in resource deployment
that wastes people’s skills (Gibbons, Kennedy, Burgess and Godfrey, 2012).
All actions need to be supported by top management, and shared values are a prerequisite
for sustainably implementing lean. Having a lean culture in place is necessary to make
employees accustomed to the new working environment (Hasle, Bojesen, Jensen and
Bramming, 2012; Marksberry, 2011; Shingo, 1989).
In recent years, lean management and Six Sigma have been increasingly integrated. Hybrid
methodologies were created to overcome the weaknesses in both programmes. Many
scholars are working on merging both philosophies, since they have many things in
common. Corbett (2011), for example, examines Lean Six Sigma (LSS) as a central part
of an organisation striving for continuous improvement and business excellence. He uses
the criteria for performance excellence to benchmark and continuously improve
organisational outcomes. For example, after adopting the LSS philosophy in 2001, a
company improved their quality performance (91 %), spending (70 %), delivery
performance (67 %) and generally reduced their risk (84%). Over a period of six years
(2001-2007), the company saved 3bn USD. Andersson et al. (2006) follow the opinion
that Six Sigma is a component of TQM and takes quality management to the next level.
They state there is no contradiction between the goals of Six Sigma and lean, as both
approaches are roadmaps to achieving business excellence. The concepts comprise tools
that help further optimise and improve processes and product quality. There are
fundamental differences between lean and TQM; however, the methodologies, tools and
results bring the authors to the conclusion that there are many similarities between lean,
Six Sigma and TQM that can be useful and beneficial for every company (Andersson,
Eriksson and Torstensson, 2006; Bendell, 2006; Bhuiyan and Baghel, 2005, Corbett, 2011,
Dahlgaard and Dahlgaard, 2003; Dahlgaard and Dahlgaard-Park, 2006; Salah, Rahim and
Carretero, 2010; Schonberger, 2008; Tjahjono et al., 2010).
Many empirical studies have focused on the relationship between lean manufacturing and
companies’ operational performance.

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Krafcik (1988a), for example, argues that companies, which implement lean
manufacturing, achieve very high productivity and quality. Additionally, lean plants are
better at managing mixed complexity. Krafcik (1988a) states that new technology has no
significant effect on operational performance. He concludes his paper by stating that
implementing lean management is one of the best ways to improve quality and
productivity performance (Bhasin, 2011; Ghosh, 2013; Krafcik, 1988a; Shah and Ward,
2007; Womack et al., 1991).
Many authors investigate the ideal sequence for adopting lean production. Åhlström
(1997), for example, suggests that management effort and resources dedicated to creating
a system with a flat hierarchy first need to be established as the basis for improving
manufacturing capabilities. Second, he proposes adopting the continuous improvement
philosophy with multifunctional teams solving problems in their day-to-day work.
Ultimately, the entire system has to work with integrated principles of lean production to
reach the desired goals (Åhlström, 1997; Cua et al., 2001; Flynn et al., 1995).

2.1.4 Continuous Improvement

“Improvement usually means doing something
that we have never done before.”
Shigeo Shingo

As described above, continuous improvement (CI) is a core element of OPEX. After World
War II, it was central to Japanese management and the most important factor in the success
of their initiatives (Imai, 1986; Shingo, 1988).
CI is a management philosophy for increasing the efficiency and effectiveness of
processes. CI originates with Toyota and Deming’s quality movement in the 1950s. Imai
(1986) uses the term “kaizen” (Japanese for “good change”) as a philosophy where life
and work should focus on constant improvement. Kaizen is for the most parts similar to
CI. During his time in Japan, Deming taught the Japanese about the plan-do-check-act
cycle (Deming Cycle, Shewhart cycle) that consequently takes CI into consideration. CI
also needs to be integrated into TPM, TQM, JIT and human and strategy-orientated
practices to unleash its power (Imai, 1986; Shewhart, 1986; Singh and Singh, 2012;
Zangwill and Kantor, 1998).
Implementing CI philosophy requires a change in working methods. There is a stronger
focus on teamwork, self-directed teams, cross-functional training, incentive systems,
employee involvement and active participation from every employee. Therefore, it is
necessary to continuously develop an organisation and the people involved to ensure that
improvement never stops (Imai, 2012; Pettersen, 2009).

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Implications for the current research project

I 1: OPEX includes competing through quality and sees this as a competitive
advantage
I 2: OPEX includes TQM approaches that lead to stabilised processes
I 3: An overall systems approach is the key to sustainable, long-term success
I 4.: OPEX supports CI
I 5.: The combination of lean, Six Sigma and CI leads to an overall performance
increase
I 6.: CI requires the integration and investments in the workforce to continuously
develop an organization towards OPEX

2.2 Operational Excellence in the Pharmaceutical Industry

“A pessimist sees the difficulty in every
opportunity; an optimist sees the opportunity in
every difficulty.”
Winston Churchill

The first serious OPEX initiative in the pharmaceutical industry was launched about 14
years ago by major research companies. Before then, the pharmaceutical industry was not
affected by such high cost pressures as other industries. In addition, the regulatory body
was not a driver to put effort into OPEX and continuous improvement (Friedli, Mänder
and Basu, 2014).
In 2002, the FDA announced the Pharmaceutical cGMPs for the 21st century initiative,
with the aim of forcing the use of new technological advances, developing inspection
policies resting upon advanced pharmaceutical science and the consistent use of state-of-
the-art quality management systems. In addition, the agency stated their vision for
pharmaceutical manufacturing, the core elements of which were: 1) Product quality and
performance should be achieved by designing effective and efficient manufacturing
processes. 2) Product specifications should consider formulation and process factors that
affect performance. 3) Continuous improvement approaches should be in use in every
company. All subsequent FDA activities were based on the concept of modernising quality
management and manufacturing within pharmaceutical companies (FDA, 2004; Friedli,
Basu, Bellm and Werani, 2013; Friedli et al., 2014).

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The following sections provide an overview of the evolution and current status of OPEX
in the pharmaceutical industry and introduces the St.Gallen Operational Excellence model.

2.2.1 Evolution of OPEX in the Pharmaceutical Industry

“Perfection is not attainable, but if we chase
perfection, we can catch excellence.”
Vince Lombardi

The evolution of OPEX in the pharmaceutical industry started with the “pre-OPEX” phase
up until the late 1990s and was followed by the learning or “Best Practice Transfer” and
“Transformation” phases. Today we are still in the Transformation phase, but looking to
the future we see the rise of the “Integrated Operations Systems” phase. The
Transformation phase addresses company-wide initiatives and programmes that are
supported and engaged by top management. The supportive organisational setup of the
company and a change management programme that integrates and engages every single
employee is implemented. These components allow a company to implement the OPEX
programmes sustainably. The Integrated Operations Systems approach goes beyond the
tools. It combines all programmes under one umbrella to align the key activities and strive
for operational competitiveness. Knowledge sharing will be one core element of the next
phase, to spread new innovations quickly and effectively throughout the entire network.
The will to improve and further develop the company will prevail on all levels. Modern
quality management approaches are, like the OPEX programmes, systems-orientated.
OPEX can be a measure of the effectiveness of the quality system. The divide between
OPEX and quality needs to be overcome to use the synergies of both activities as a
competitive advantage (Friedli, Kickuth, Stieneker, Thaler and Werani, 2006, Friedli et
al., 2014, 2014).

2.2.2 St.Gallen Operational Excellence model

“He who stops being better stops being good.”
Oliver Cromwell

The evolution described in the previous section led the St.Gallen OPEX team to develop
an OPEX model that combines all previously mentioned theories, tools, approaches,
concepts and methods. The original model was first published in a dissertation at the
Institute of Technology Management (ITEM-HSG) at the University of St.Gallen in 2005
and includes several sub-elements. Every sub-element itself is important and has an impact
on overall success.

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The individual elements also reinforce each other (Friedli et al., 2013; Friedli et al., 2006).
The St.Gallen OPEX model can be divided into technical and social sub-systems. The
technical sub-system comprises the elements TPM, TQM and JIT and analyses the
implementation level of the technical practices in the individual categories. The sequence
of TPM, TQM and JIT has been adapted over time, since there is a correlation between
the practices. First, it is necessary to have stable equipment in place so TPM activities are
supported; second, stable processes are required that can be achieved with TQM practices;
and, finally, inventories can be reduced via JIT initiatives. Standardisation and visual
management are mandatory basic elements. The social sub-system, the so-called Effective
Management System (EMS), comprises practices that lead to the common goal of
motivating and aligning people to strive for the same objective. People need to feel that
they are responsible for something and get full support from their supervisors. This system
covers the cultural aspects that are essential for successful OPEX implementation. (Friedli
et al., 2013; Friedli et al., 2006; Friedli, Werani, Basu and Gronauer, 2010)
High-performing sites do not achieve high levels of performance in individual KPIs, but
instead have high performance on a holistic level. The balanced approach of effectiveness,
efficiency and overall performance of the manufacturing system across all categories in
the St.Gallen OPEX model (TPM, TQM and JIT) is the key to a site being operationally
excellent (Friedli et al., 2013; Friedli et al., 2006; Friedli et al., 2010).
The St.Gallen OPEX Model is shown in Fig. 9.

Fig. 9: St.Gallen OPEX Model (Friedli et al., 2006)

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Implications for the current research project

I 7: OPEX approaches in the pharmaceutical industry need to be further developed to
optimise and sustain current OPEX activities.
I 8: The divide between OPEX and quality management needs to be overcome
I 9: System-orientated OPEX programmes build the basis for a stabilized production
environment

2.3 Quality Management

“Quality is the best business plan.”
John Lasseter

Quality management is usually linked to the so-called “quality gurus”: Juran, Ishikawa,
Feigenbaum, Deming, Crosby, Groocock and Taguchi. The interest in quality management
has increased significantly in the recent years. The ability to disseminate information very
quickly through an organisation makes it easier to implement a quality management
system (Carlsson, 1993; Ghobadian and Speller, 1994; Miller, 1996).
Section 2.3.1 provides an overview of the evolution of Total Quality Management. Section
2.3.2 provides an overview of the prerequisites for successful quality management. Section
2.3.3 reflects on quality management as a competitive advantage and Chapter 2.3.4
considers two 20th century examples of quality management.

2.3.1 Evolution of Total Quality Management

“Quality is free.”
Philip Crosby

Total Quality Management began in Japan under the name Total Quality Control (TQC)
and spread with different designations throughout the world (Seghezzi, Fahrni and Friedli,
2013).
Juran’s publication of his first Quality Control Handbook in 1951 was a milestone in
quality research. His aim of fully satisfying the customer at reasonable costs is central to
the book. He addresses the elements of quality of design, quality of conformance,
availability, safety and product conformance (Crosby, 1979; Juran, 1951).

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Juran and Deming were the main influences on quality management in the US and Japan,
the latter of which they visited in the 1950s to support industrial reconstruction after World
War II. Based on the teachings of Deming and Juran, the Japanese further developed their
approach to TQC (Miller, 1996).
Ishikawa was the main contributor to TQC development or so-called “company-wide
quality control” (CWQC). In detail, he asserts that quality control must handle developing,
designing, producing, marketing and servicing products. In addition, quality work needs
to be conducted in the service of optimal cost and usefulness. He states that all company
departments must work together to achieve a common goal (Ishikawa, 1985, 1990).
The term CWQC was introduced in Japan around ten years after Feigenbaum published
TQC in the United States. Most of Ishikawa and Feigenbaum’s definitions are similar
(Garvin, 1988; Martinez Lorente, Dewhurst and Dale, 1998).
Feigenbaum published his work on TQC in 1961 in his book Total Quality Control. His
approach states that quality starts when developing a product and ends when the product
is handed over to a customer with full customer satisfaction. He also sees product quality
as a dynamic element, since customer expectations can change over time. The core
elements of his approach can be summarised as setting quality standards, appraising
conformance to these standards, reaction to deviations from these standards and
continuous improvement of quality standards. The focus of Feigenbaum’s approach is
preventing poor quality (Feigenbaum, 1961).
Deming became famous when he published the first edition of his book Quality,
Productivity and Competitive Position in 1982, and the first edition of his most famous
publication, Out of the Crisis, in 1982. His quality approach starts and ends with the
customer. He sees it as mandatory to stay ahead of the customer to identify his
requirements proactively. He discusses the common causes of defects that may be linked
to general factors like working environment or poor product design (Deming, 1982, 1986).
Crosby started his work on TQC in the 1960s and was primarily active in the United States.
He asserts quality should be managed by top management and measured via the “cost of
quality” analysis approach. He became famous for his definition of quality as conformance
to requirements. His most famous statement is “Quality is free”, which is also the title of
his 1979 book (Crosby, 1979).
In his 1986 book, The Chain of Quality, Groocock combines the Juran’s “fit for purpose”
and Crosby’s “conforms to requirements” definitions. His approach is value-driven, which
means that a certain product quality can only be achieved through a certain level of
investment. For him it is clear that product quality is a core component of a company’s
competitiveness (Groocock, 1986).

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In his 1986 book, Introduction to Quality Engineering, Taguchi focuses on the losses that
occur after product shipment. These could include breakdowns or failure to meeting
customer requirements. The lower the loss, the better the quality of the product (Taguchi,
1986).
Some authors see Deming, Ishikawa and Juran as the founders of the TQM philosophy.
Ishikawa in particular shifted more and more attention from the term TQC to TQM
(Chiarini, 2011; Martinez Lorente et al., 1998).
Nowadays, the term Total Quality Management is used both by academics and
organisations in the West and Japan, because it is more about managing quality than
controlling quality (Chiarini, 2011; Garvin, 1988).
The following sections provide a literature review on works by the quality gurus Deming,
Juran and Crosby, because they focus on quality systems and consider everything from
research to manufacturing (Ghobadian and Speller, 1994; Sarker, 2008).
Deming’s work focuses on statistical tools such as statistical process control (SPC).
According to his definition, the customer is king and his expectations must not just be
satisfied but exceeded. In addition, he states that quality is not static but must be adjusted
over time. The ability to manage company systems and processes is, in his opinion,
fundamental to improving overall quality. He sees most quality problems not as the fault
of the workers involved, but as mistakes for which management is responsible (Deming,
1986; Ghobadian and Speller, 1994).
Juran’s definition of quality follows the statement “fit for purpose”, which means that
quality is a function of customer satisfaction. One of his core ideas was the implementation
of quality circles and the 80/20 rule of Pareto’s law. In addition, Juran’s quality approach
addresses all company systems, including product design, vendor relations, process
development, manufacturing control, inspection, distribution, customer care and field
service. He also stresses the relevance of soft factors of quality management. He sees
organisational, communicational and coordination factors as drivers of successful quality
management. Top management need to control and connect the entire system to achieve
high overall quality performance (Ghobadian and Speller, 1994; Juran, 1951; Juran, 1989;
Juran, 1993)
Crosby provided major input to today’s quality management guidelines, e.g., the four
points to focus on in practice: conformance, prevention, performance and real cost of
quality. Those key elements led him to his zero-tolerance approach. His approach to
quality is based on the perspective of the organisation as an integrated system led by top
management. He sees top management commitment, appropriate company culture with
the goal of preventing defects and consistent quality-related actions throughout the
organisation as fundamental to successful quality improvement.

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Additionally, he emphasises that a company’s quality improvement never ends and needs
to be continuously pushed by management (Crosby, 1979; Ghobadian and Speller, 1994).

2.3.2 Quality Management Culture

“Commitment without understanding is a
liability.”
Oliver Wight

To tackle today’s challenges and use quality management as a strategic advantage, the
core components of quality management have to be implemented with purpose. An
integrated process management approach has to be designed to stabilise and continuously
improve all relevant processes (Dansky and Brannon, 1996; Hames, 1991; Mehra and
Agrawal, 2003; Powell, 1995).
Quality management is not just the job of the manufacturing department; it is the job of
everyone within the organisation. Quality improvement has to be a philosophy, a way of
thinking and a way of life of every employee (Batten, 1992; Black and Porter, 1996;
Bowen, 1996; Donk, Dirk Pieter van and Sanders, 1993; Mehra and Ranganathan, 2008;
Sinclair and Collins, 1994; Trerise, 2010).
Quality management needs to focus on involving every single employee and the
continuous improvement philosophy. It requires a structured procedure to integrate quality
and to solve problems with a focus on customer satisfaction (Feigenbaum, 1999; Gimenez-
Espin, Jiménez-Jiménez and Martínez-Costa, 2013; Seghezzi et al., 2013).
The integrated quality approach by the University of St.Gallen tackles those challenges by
proposing five core components that a company’s philosophy must contain. These core
elements are summarised in Table 4.

Table 4: Core elements of the integrated quality approach (Seghezzi et al., 2013)

1) Focus on the customer

2) Enact and use employee’s knowledge
3) Continuous improvement philosophy (radical and stepwise)
4) Quality is the responsibility of every single employee
5) Work in processes (Seghezzi et al., 2013)

These ideas can be adopted worldwide, independent of the type and location of the
organisation (Seghezzi et al., 2013).

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Nevertheless, these ideas need a certain kind of company culture in place to work. This
starts at the top management level.
Every quality philosophy has to be supported and led by top management to secure the
success of the initiative. It is not enough for top management to be committed to quality;
management needs to know, in detail, what their quality approach is aiming for and what
the overall quality goals are. This means that proactive actions by top management are
needed to support the quality initiatives (Beer, 2003; Buch & Rivers, 2001; D'Angelo,
1995; Deming, 1982; Ehlers, 2009; Gambi, Lillian do Nascimento, Gerolamo, &
Carpinetti, Luiz Cesar Ribeiro, 2013; Noronha, 2000; Pang, 2004; Rad, Ali Mohammad
Mosadegh, 2006; Schein, 2010; Seghezzi et al., 2013; Sherman, 1991b; Williams, Wiele,
van Iwaarden, & Visser, 2004).
The system, organisational structure, process design, company culture and employee
training must all be ready, prepared and supportive of quality activities (Corbett and
Rastrick, 2000; Irani, Beskese and Love, 2004; Lam, Poon and Chin, 2006; Prajogo and
McDermott, 2005; Seghezzi et al., 2013; Shadur, 1995; Shea and Howell, 1998).
In addition, quality management needs to be anchored in the overall firm strategy. If
quality is not one of the top company priorities, the quality initiative will fail (Daniels,
1992; Daniels & Dale, 1990, 1993; Ranzau, 1993; Roldán, Leal-Rodríguez, & Leal, 2012;
Sherman, 1991a).
Quality goals need to be included in business plans along with specific quality measures
to track improvements. All departments have to be aware of the quality goals and have to
work to achieve the overall strategic aim (Carlsson, 1993; Daniels and Dale, 1990;
Feigenbaum, 1984; Juran, 1993; Naor, Goldstein, Linderman and Schroeder, 2008;
Todorut, 2012).
Leaders and employees are both key to success and a prerequisite for implementing
successful quality management (Hoogervorst, Koopman and Flier, H. van der, 2005;
Laszlo, 1998; Seghezzi et al., 2013).
The selected literature shows just how important a company-wide quality culture is. With
the right culture and behaviours in place, every company can sustainably and successfully
implement a quality management system.

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2.3.3 Quality Management as Competitive Advantage

“A goal without a plan is just a wish.”
Antoine de Saint-Exupery

With all the prerequisites for implementing an effective quality management in place, the
initiative can be seen as competitive advantage. Several studies have investigated the
relationship between quality management and overall firm performance.
The results show that effective quality management positively affects a company’s
financial, market, inventory management, quality and innovation performance (Agus
and Hassan, 2011; Baird, Hu and Reeve, 2011; Deadrick and Gardner, 1999; Garvin, 1984;
Kaynak, 2003; Prajogo and Sohal, 2003, 2006; Samson and Terziovski, 1999; Zehir et al.,
2012).
Kaynak (2003), for example, conducted a major study evaluating 214 datasets to examine
the impact of quality management on firm performance. She designed a structural model
based on literature which she used for statistical analysis. By analysing this data, she
proved the positive significant statistical influence of quality performance on overall firm
performance. In addition, her model describes a sequence for adopting quality
management to achieve superior performance. Initially, strong management leadership
and appropriate employee relations and training are required. With these in place, the
following components need to be addressed to further improve quality within an
organisation: “quality data and reporting”, “supplier quality management”,
“product/service design” and “process management”(Kaynak, 2003).

2.3.4 20th century of Quality Management

“Essentially, all models are wrong,
but some are useful.
George E.P. Box

Total Quality Management was very successful at the end of the 20th century, and is
nowadays seen as an overall management philosophy. Models like the Malcolm Baldrige
model from the Malcolm Baldrige National Quality Award (MBNQA) or the European
Foundation of Quality Management (EFQM) model emerged from the TQM approach.
Over time, these models were further developed and reflect categories that support
achieving a high level of excellence. The models are used throughout the world as
management and organisational tools to achieve overall excellence and determine a
company’s current excellence status (EFQM, 2013; NIST, 2006; Seghezzi et al., 2013).

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2.3.4.1 The EFQM model

The core philosophy of the EFQM model is that the complex environments of today’s
organisations can only be managed with strong leadership, a clearly communicated overall
strategy, continuous development of the workforce and improved partnerships. The goal
of the EFQM model is to provide the customer with value-added products and services
that fully satisfy their expectations. The EFQM model has nine interrelated components
that are separated into so-called “enablers” and “results”.
The enablers comprise: (1) leadership, (2) people, (3) strategy, (4) partnership and
resources and (5) processes, products and services. The enablers are necessary to achieve
long-term success. The “results” section represents the outcome an organisation achieves
by applying the enablers. The results are divided into (1) employee results, (2) customer
results, (3) society results and (4) business results. The model criteria are interrelated and
work in a cause and effect relationship. The model addresses the learning, creative and
innovative aspects of a firm via backward reflection, which ensures the continuous
evaluation and improvement of both the results and enablers. The EFQM model can be
individually adapted to any organisation, using sub-categories with company-specific
characteristics. The current excellence status of an organisation can be evaluated via self-
assessment (EFQM, 2013; Friedli et al., 2013; Seghezzi et al., 2013).
The EFQM model is shown in Fig. 10.

Fig. 10: EFQM model of excellence (EFQM, 2013)

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2.3.4.2 The Malcolm Baldrige model

The Malcolm Baldrige model from the Malcolm Baldrige National Quality Award
(MBNQA) is a general TQM model with a first layer of seven interrelated categories. The
model contains two more layers that help further specify company requirements to
establish a quality system and evaluate a firm’s excellence score (Friedli et al., 2013).
The first layer of the model is shown in Fig. 11 and has three basic elements. The first is
the organizational profile, which covers the environment, relationships and strategic
challenges. The second is system operations, which covers six of the seven Baldrige
categories (1) leadership, (2) strategic planning, (3) customer focus, (5) workforce focus,
(6) process management and (7) results. Elements one to three show the importance of
leadership focus, while categories five to seven show the work that yields to performance
and the overall system results. The system operations element shows the company how to
clearly achieve their goals and get expected results. The third basic element, system
foundation, is shown in category four of the model. The fundamental element
“measurement, analysis and knowledge management” is critical to the sustainable success
and effective management of the firm. The core idea of this element is the continuous,
knowledge-driven improvement of the organisation (Friedli et al., 2013; NIST, 2006;
Seghezzi et al., 2013).

Fig. 11: Malcolm Baldrige model from the Malcolm Baldrige National Quality Award
(NIST, 2006)

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Both models can be used as guidelines for companies to structure their initiatives and to
review the current status of different categories to derive conclusions and priorities for
future work. Additionally, the models can be used for benchmarking purposes to compare
companies with successful examples within the industry (Friedli et al., 2013).

Implications for the current research project

I 10.: Quality measures need to be in place to track improvements and the trends in the
quality performance.
I 11.: Quality management practices show a direct link to innovation, operations and
overall firm performance
I 12.: Quality management is stabilising the company’s processes
I 13.: Quality management needs to have a continuous improvement philosophy to be
sustainable
I.14: Quality management is dedicated to the overall company culture that is a
prerequisite for a successful implementation
I.15: The EFQM model and the MBNQA model are showing companies how to achieve
excellence by combining several categories

2.4 Quality Management in the Pharmaceutical Industry

“In God we trust; all others must bring
data.”
William Edwards Deming”

The quality gurus Deming, Juran and Crosby all use the term “quality system” in their
research studies and propose quality systems to manufacturing companies (Sarker, 2008).
Wang and Huynh (2004) describe a quality system as a management structure with related
practices and procedures necessary for quality management. They state that the main aim
of a quality system should be customer satisfaction through a decrease in non-conformance
(Wang and Huynh, 2014).
Papers from Chen et al. (2006) and Zakuan (2010) reflect the positive impact of a quality
system on a company’s organisational performance (Chen, James Lin and Chang, 2006;
Zakuan, Yusof, Laosirihongthong and Shaharoun, 2010).

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In addition, Priede (2012) explains in his work that quality management systems are the
most effective tools to increase competitiveness. He argues that there are several reasons
to implement these systems, which are summarised in Table 5 (Priede, 2012):

Table 5: Benefits of implementing quality systems (Priede, 2012)

1) Well-documented processes and procedures that lead to consistent output

2) Constant quality measurement that provides live information about
processes
3) When defects occur, the procedures help to systematically solve the problem
4) Decease in defect rate
5) Defects detected earlier, saving costs
6) Documented procedures are easier to follow and understand for new
employees
7) Organisations can increase sales and revenue
8) Organisations can reduce production costs (less rework, fewer mistakes)
9) Organisations can significantly reduce costs due to poor quality (Priede,
2012).

Quality systems in the pharmaceutical industry are addressed via a guideline, designed by
the International Conference of Harmonisation in 2000, which follows the general ideas
of the ISO 9000 series. The following two paragraphs explain the main elements of the
ISO 9000 series and the ICH Q10 Pharmaceutical Quality System. The Section 2.4.3
describes the current status of the quality metrics literature and Section 2.4.4 reflects on
the quality metrics discussions in the pharmaceutical industry.

2.4.1 ISO 9000 Series of Standards

“Make everything as simple as possible,
but not simpler.”
Albert Einstein

The ISO 9000 series was first published in 1987 by the International Organization for
Standardization. This series comprises guidelines for designing a quality management
system. The ISO 9000 series has spread all over the world and is used by almost every
industry, no matter the size of the company. The ISO 9000 series consists of the ISO
9000:2015, ISO 9001:2015 and ISO 9004:2009 standards. The ISO 9000:2015 guideline
provides the community with the general basics and terms used throughout the documents.

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In general, this guideline helps companies establish a common language within their
organisation and helps them implement the ISO 9001 guideline more easily.
The ISO 9001:2015 guideline describes the requirements of a quality management system
and addresses the processes necessary to fulfil customer requirements. ISO 9004:2009
extends the ISO 9001:2015 guideline and shows how quality management requirements
can be used to increase performance (ISO 9000:2015, 2015; ISO 9001:2015, 2015; ISO
9004:2009, 2009; Pfeifer and Schmitt, 2014; Seghezzi et al., 2013; Winco K. C. Yung,
1997).
Most companies choose to implement the ISO 9001 quality system because their
customers require it. The second reason for acquiring an ISO 9001 certification is the
associated quality improvements and cost benefits. Some companies use the ISO 9001
certification as a marketing tool or competitive advantage. Fig: 12 shows the top ten
countries where ISO 9001 certificates have been issued. The ISO 9001 certification is
particularly popular in China due to the high competition on the Chinese market (Narendar
Sumukadas, 2006; Pfeifer and Schmitt, 2014; Priede, 2012; Winco K. C. Yung, 1997).

Fig: 12: Top 10 countries for ISO 9001 certificates (Priede, 2012)
Recent years have seen a significant increase in the number of ISO 9001 certificates issued.
While only 46,571 certificates were issued in 1993, 1,109,905 companies were certified
worldwide in 2010 (Priede, 2012).

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Fig. 13 shows this increase from 1993 to 2010.

Fig. 13: Number of issued ISO 9001 certificates from 1993 to 2010 (Priede, 2012)
With the evolution of the ISO 9000 family, the focus is increasingly on better quality
management. Both customer needs and company requirements are taken into
consideration. These aspects are mainly highlighted in the ISO 9004 guideline. The ISO
9004:2009 guideline helps companies implement a process-orientated quality
management system that will guide them towards business excellence. The guideline
addresses the measurement and evaluation of quality costs, market analysis and reactions
to market feedback. In addition, the guideline introduces the term “continuous
improvement”. The ISO 9004 guideline states that management are responsible for the
continuous quality improvement, via (1) a supportive management style, (2) a promotion
and incentive system for improvements, (3) clear and understandable improvement goals
and (4) effective communication and feedback for employees. Employees are seen as the
key to success and therefore training and education for improvement is a core component
of the ISO 9004 guideline. The ISO 9004 guideline is strongly linked to the introduction
of the EFQM model and its assessment (ISO 9004:2009, 2009; Narendar Sumukadas,
2006; Pfeifer and Schmitt, 2014; Seghezzi et al., 2013; Winco K. C. Yung, 1997).

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In 2015, the ISO 9000 series was updated, bringing more context-related company factors
into the guideline. The updated version focuses on outsourced activities. Knowledge is
seen as a central company resource. A risk-based approach is central and the responsibility
for quality is spread cross-functionally throughout the company. In general, the guideline
was only changed to better apply in today’s production environment. The central elements
remain the same, and guidelines still promote a stable quality management system (ISO
9000:2015, 2015; ISO 9001:2015, 2015).

2.4.2 ICH Q10 – Pharmaceutical Quality System (PQS)

“Pharmaceutical drugs are legal,
but they can hurt a lot of people.”
Ziggy Marley

The ICH Q10 guideline proposes a model for a quality management system for the
pharmaceutical industry called the “Pharmaceutical Quality System (PQS)”. The system
is based on the ISO 9000 series and consists of ICH Q7, “Good Manufacturing Practices”,
ICH Q8, “Pharmaceutical Development” and ICH Q9, “Quality Risk Management”.
The ICH Q7 guideline describes the basic elements required for managing quality with a
focus on meeting regulatory demands. The guideline discusses 18 different elements
necessary to meet GMP requirements (International Conference on Harmonisation, 2000).
Table 6 shows an overview of the 18 GMP elements:

Table 6: Elements of the ICH Q7 GMP guideline (International Conference on

Harmonisation, 2000)

1) Quality management
2) Personnel
3) Buildings and facilities
4) Process equipment
5) Documentation and records
6) Materials management
7) Production and in-process controls
8) Packaging and identification labelling of APIs and intermediates
9) Storage and distribution
10) Laboratory control
11) Validation
12) Change control
13) Rejection and reuse of materials

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14) Complaints and recalls

15) Contract manufacturers
16) Agents, broker, traders, distributor, repackers and relabellers
17) Specific guidance for API manufacture by cell culture/fermentation
18) APIs for use in clinical trials (International Conference on Harmonisation,
2000).

In every category, the guideline provides the user with detailed information about the
necessary sub-elements to consider. For example, the quality management category
discusses 18 quality principles, responsibilities for different issues, internal audits and
product quality reviews (International Conference on Harmonisation, 2000).
The guideline aims to provide a detailed look at adopting an appropriate system to manage
quality. The ICH Q10 guideline uses the ICH Q7 elements as the basis for the PQS
(International Conference on Harmonisation, 2000, 2008).
The following discusses the content of the ICH Q10 guideline and the PQS in detail.
The Q10 guideline applies from pharmaceutical development to product phase out. The
three main objectives of the ICH Q10 guideline are: (1) to complete the product, (2) to
effectively monitor and control processes and product quality and (3) to support
continuous improvement to identify and implement process improvement and variability
reduction (International Conference on Harmonisation, 2008).
The guideline includes the two enablers “Quality Risk Management” and “Knowledge
Management” that help successfully and sustainably implement ICH Q10. Since other
scholars have shown that knowledge management positively influences quality practices,
this element is supported by other research streams (Colurcio, 2009; Duran, Çetindere and
Şahan, 2014; International Conference on Harmonisation, 2008).
Quality risk management is essential for a quality system. It helps companies react
proactively and avoid failures in advance. It also helps to identify, evaluate and control
potential quality risks. The ICH Q9 guideline provides examples of appropriate tools to
use quality risk management effectively (International Conference on Harmonisation,
2008).
The ICH Q10 guideline contains “Management Responsibility” as a crucial component.
This responsibility includes a strong management commitment, a shared quality policy,
proper quality planning and a general quality objective that needs to be supported at every
level of management. It is essential to have the right resource management in place and to
have the right people with the right training/education in the right positions. Team and
group work is necessary to extract the full potential from available resources.

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In addition, internal communication of relevant information is mandatory to involve and

engage every single employee. “Management reviews” need to be considered to ensure
that everybody is on the right track and has the same understanding of the initiatives. Of
capital importance of management responsibility are management of purchased materials,
management of change in product ownerships and management of outsourced activities.
Those activities and actions need to be under control and part of the company’s quality
system (International Conference on Harmonisation, 2008; Narendar Sumukadas, 2006).
Fig. 14 shows the PQS model from the ICH Q10 guideline (International Conference on
Harmonisation, 2008).

Fig. 14: ICH Q10 pharmaceutical quality system model (International Conference on
Harmonisation, 2008)
The PQS elements of the model are the “Process Performance and Product Quality
Monitoring System”, the “Corrective and Preventive (CAPA) System”, the “Change
Management System” and the “Management Review” of process performance and product
quality (International Conference on Harmonisation, 2008).
The “process performance and product quality” element is a system to monitor the
capability of the processes. It controls the products and investigates whether the products
satisfy the required quality criteria, using quality risk management methods. In addition,
the system provides tools for measuring and analysing the defined control strategies. It
also collects knowledge to enhance overall process understanding (International
Conference on Harmonisation, 2008).
The CAPA system is necessary to derive the appropriate actions from investigations into
complaints, recalls, deviations, audits and general findings. The system follows a
structured approach to identify the root causes of problems.

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 RESEARCH STATUS

The CAPA results in process and product improvements and broadens general product and
process understanding. The “change management system” supports the evaluation and
implementation of changes coming from (1) innovations, (2) continuous improvement, (3)
outputs of process measures and quality and (4) CAPAs. The system ensures there are no
unintentional ramifications of any changes made. The “change management system”
utilises quality risk management to evaluate the proposed changes. In addition, all changes
are evaluated by an interdisciplinary expert team with the appropriate knowledge and
expertise. After implementing a change, a review is performed to ensure the change
objectives are achieved (International Conference on Harmonisation, 2008).
The “management review of process performance, product quality” includes an escalation
process to involve different management levels in the reviews. Depending on the quality
issues, senior level management may have to be informed. Specific measures like
customer satisfaction, overall process performance and the effectiveness of changes are
reviewed periodically (International Conference on Harmonisation, 2008).
The PQS is based on the idea of continual improvement. The “management reviews”
evaluate objective and KPI definitions to monitor performance and help find room for
improvement. In addition, internal and external factors like new regulatory guidance,
changes in the business environment or innovations can change the objective of the PQS.
A primary task of the “management review” is to sustain the momentum and effectiveness
of the PQS in the daily work of every employee (International Conference on
Harmonisation, 2008).

2.4.3 Quality Metrics

“You can’t manage what you can’t measure.”
William Edwards Deming

As described in the previous two sections, it is vital to have a system in place that measures
the current process performance and product quality. Many studies show the positive
impact of quality practices on overall firm performance and innovation performance.
Company strategy is directly linked to quality performance (Duran et al., 2014; Flynn et
al., 1995; Kaynak, 2003; Prajogo and Sohal, 2003, 2006; Samson and Terziovski, 1999;
Zehir et al., 2012).
Davidson et al. (2010), for example, state that a firm’s inventory performance shows the
success of its quality programme. Their metric for measuring quality performance includes
inventory-related performance indicators. They include ten measures that cover everything
from waste reduction to system-wide responsibility at all levels (Davidson, Chelsom, Stern
and Janes, 2000).

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RESEARCH STATUS

The elements of their inventory management system are summarised in Table 7.

Table 7: Metric to measure inventory and quality performance (Davidson et al., 2000)

1) Elimination of waste
2) Time to market
3) Quality suppliers
4) People and processes are integrated in the strategic plan
5) Reduction of production costs
6) Reduction of ordering and inventory costs
7) Co-operation with suppliers
8) Fulfilment of customer expectations
9) Integration of customer and suppliers in the internal system
10) System-wide responsibility at all levels (Davidson et al., 2000).

The conclusion of their analysis is that a high-performing JIT system indicates good
quality management implementation and performance (Davidson et al., 2000).
Garvin (1987) proposes that a company should compete through eight quality dimensions:
reliability, conformance, performance, durability, features, aesthetics, serviceability and
perceived quality. He states that not every company can be the best in every dimension,
so they must make a strategic decision about which to compete in. Products that rank high
in all eight dimensions are usually high end and very expensive. His examples include
Rolex watches and Rolls-Royce automobiles. The customer pays for this high quality that
will be delivered by the producer (Garvin, 1987).
A meaningful quality metric must consider non-financial factors. The knowledge a
company possesses is one of its most important factors and provides a competitive
advantage which directly influences quality performance. Knowledge management has to
be included in a quality metric as an enabler to identify the impact of soft factors on overall
quality performance (Colurcio, 2009; Duran et al., 2014).
Knowledge management feeds into company culture, which is the key to successful
quality management. Companies rarely have a single culture that needs to be managed;
instead, they must handle several sub-cultures that have to be combined under an umbrella
as part of a unified company culture. Culture itself is hard to assess and hard to measure,
since only a tiny portion of the entire sub-culture landscape is visible in the overall picture.
In addition, cultural performance is hard to put into words, especially from the outside
(Chapman, Clarke and Sloan, 1991; Day, 2014).

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Baird et al. (2011) summarise the impact of company culture across three categories:
outcome orientation, teamwork and innovation. All three elements support the
implementation of quality practices such as having a goal in mind, having the right people
in place and working together in teams on innovative solutions. It is not easy to have a
good culture in place, which is why strong management commitment and awareness are
essential to ensure the success of every initiative (Baird, Hu et al., 2011).
In general, it is very difficult to define a quality metric for a company’s quality
management, because many authors define quality differently. Because of these different
definitions, the proposed metrics are often not comparable (Hackman and Wageman,
1995).
However, there are some common categories authors share when talking about quality
metrics. The dimensions mainly follow the key levers of every quality management
system. Saraph et al. (1989), Flynn et al. (1994) and Ahire et al. (1996) share the opinion
that the following elements should by fundamental to every quality metric (Ahire, Golhar
and Waller, 1996; Flynn, Schroeder and Sakakibara, 1994; Saraph, Benson and Schroeder,
1989):
• Support from top management
• Product design process
• Customer relationship
• Process flow management
• Supplier relationship
• Quality data and reporting
• Workforce management
• Role of the quality department
• Employee attitudes and behaviour
• Benchmarking (Ahire, Golhar and Waller, 1996; Flynn, Schroeder and Sakakibara,
1994; Saraph, Benson and Schroeder, 1989).
In general, it is very important for a quality metric to consist of a balanced set of measures,
both financial and non-financial, that focus on all stakeholders and activities. The
measures should reflect corporate goals and focus on all stakeholders and initiatives. This
is necessary to obtain an accurate idea of overall system performance (McAdam and
Saulters, 2000).

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2.4.4 Quality Metrics in the Pharmaceutical Industry

“The starting point for improvement is
to recognize the need”.
Masaaki Imai

The following sections describe the current discussion surrounding the FDA’s quality
metrics initiative at three different institutions. The first section describes the view of the
Engelberg Center for Health Care Reform at Brookings. The second discusses the view of
the Parenteral Drug Association (PDA). Finally, the third section discusses the approach
of the International Society for Pharmaceutical Engineering (ISPE) and critically reflects
on the initial results of their current study. In addition, Chapter 2.4.4.4 describes the latest
draft guidance from the FDA.

2.4.4.1 Engelberg Center for Health Care Reform at Brookings

The Engelberg Center for Health Care Reform at Brookings evaluates the use of quality
metrics across the industry and concludes that, in spite of the wide use of quality-related
metrics, no common standard is followed. Sometimes different quality metrics are used at
different sites belonging to the same manufacturer. As quality assurance and quality
control are essential to the pharmaceutical industry, standards related to measuring quality
are necessary for high quality and stable supply (Engelberg Center for Health Care, 2014).
The consensus of a two-day workshop about an industry shared quality metrics was that
the metrics should bring value to the industry, the public and the FDA. The metrics should
drive quality-driven company culture in the pharmaceutical industry. (Engelberg Center
for Health Care, 2014).
The FDA presented the following four metrics to the audience in the context of this
workshop: (Engelberg Center for Health Care Reform, 2014, p. 4)
• “Lot acceptance rate”
• “Product quality complaint rate”
• “Confirmed out-of-specification rate”
• “Recall rate” (Engelberg Center for Health Care Reform, 2014, p. 4).
The team came to the conclusion that the proposed FDA metrics lacked a broad
understanding of the variety within the industry. (Engelberg Center for Health Care
Reform, 2014).

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2.4.4.2 PDA – Pharmaceutical Quality Metric

In 2013, the Parenteral Drug Association (PDA) published a white paper reflecting its
current position. The association believes the FDA metrics should not only focus on
quality but should focus on driving continuous improvement. Their approach considers
three perspectives: consumer, regulator and producer. In addition, the association suggests
that the metrics should change over time depending on the maturity of a production site.
The metrics should be discussed quantitatively and qualitatively. They propose there
should be a difference between product vs. site quality metrics. Finally, they look for
leading indicators instead of lagging indicators and separate the metrics into internal and
external metrics (PDA, 2013).
Following the introduction and purpose of the association, they propose metrics on a
product and site level. The PDA metrics for FDA collection are structured as follows:
(PDA, 2013, p. 5)
Trend level by product:

• “Confirmed product quality complaint rate by product”

• “Batch reject rate by product”
• “Confirmed OOS rate (drug substance and drug product) by product” (PDA, 2013, p.
5).
Trend metrics by site:

• 1. Confirmed OOS rate (drug substance and drug product) by site

• 2. Batch reject rate by site (PDA, 2013, p. 5).
Ancillary to the metrics to be reported to the FDA, the association suggests metrics that
are seen as important but difficult to compare (PDA, 2013, p. 6).
These metrics are also dedicated to the product and site level and are structured as follows:
(PDA, 2013)
Metrics by product:
• “Process capability rate”
• “Critical investigations rate” (PDA, 2013, p. 6).
Metrics by site:
• “CAPA effectiveness rate”
• “Critical investigations rate”
• “Environmental monitoring rate” (PDA, 2013, p. 6).
However, the PDA suggests going beyond the comparison of numbers, claiming the focus
should be on what is best for quality and patients. In addition, the suggested metrics have
no data available for testing the meaningfulness of the proposed measures (PDA, 2013).

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2.4.4.3 ISPE Quality Metrics Initiative

In 2013, the International Society for Pharmaceutical Engineering (ISPE) published a
paper in answer to the FDA quality metrics programme (ISPE, 2013).
Based on this paper, the organisation, in collaboration with McKinsey, developed a quality
metrics initiative named Pilot Project Wave I. In this project, the team collected 44 datasets
for pharmaceutical production sites from different technologies (ISPE, 2015).
The ISPE team separates its metrics into product- and site-specific measures, where
product-specific metrics are entirely subsumed by the site-based metrics (ISPE, 2015).
The ISPE metrics collected for the Wave 1 Pilot are structured as follows: (ISPE, 2015, p.
16)
• “Lot acceptance rate (product- and site-based)”
• “Complaint rate (total and critical; product- and site-based)”
• “Confirmed OOS rate (product- and site-based)”
• “US recall events (total and by class)”
• “Stability failure rate”
• “Invalidated (unconfirmed) OOS rate”
• “Right first time”
• “Rework/reprocessing Rate”
• “APQR reviews completed on time”
• “Recurring deviations rate”
• “CAPA effectiveness rate”
• “Media fill failures”
• “Environmental monitoring”
• “Process capability”
• “Quality culture”
• “Deviations rate”
• “Incoming material OOS” (ISPE, 2015, p. 16).

Using this analysis, the team brought out its first analytical results. The study particularly
highlights the ability of sites to provide data. This understanding and awareness of quality
indicators was helpful for ongoing discussions.
However, the organisation had to redesign the metrics as a result of the evaluation. The
ISPE Quality Metrics Wave 2 was initiated in 2015 to further specify and evaluate new
metric sets. In detail, in the final report of the Wave 1 project ISPE recommends the
following starting metrics: (ISPE, 2015, p. 8)

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• “Lot acceptance rate (normalised by lots dispositioned; at site level)”

• “Lot acceptance rate (normalised by lots dispositioned, at product level within a
site)”
• “Critical complaints (normalised by packs released; at product level)”
• “Critical complaints (normalised by packs released; at site level, undifferentiated by
product)”
• “Deviations rate (site level)” (ISPE, 2015, p. 8).
In October 2015, an ISPE associate presented an update on the Wave 2 Pilot metrics at the
FDA/PQRI Meeting in Maryland. Again, the organisation entirely redesigned their
approach to the quality metrics initiative (Goetz, 2015).
The association came out with a new set of measures" for the Wave 2 pilot (Goetz, 2015,
p. 10):

• “Total complaints rate”

• “Critical complaints rate”
• “Recall events”
• “Lot acceptance rate”
• “Invalidated OOS Rate”
• “Right first time rate”
• “Deviations rate”
• “Recurring deviations rate”
• “CAPAs with preventive actions”
• “Planned maintenance”
• “Employee turnover”
• “Human error deviations”
• “Deviations with no assigned root cause”
• “CAPAs requiring retraining”
• “Annual product review approvals”
• “Quality culture”
• “Process capability”
• “Drug shortages” (Goetz, 2015, p. 10).
Taking a closer look at these metrics, there is no commonality with the previous tested
metrics and no similarity to the initial set of measures proposed for the Wave 2 pilot
project. This implies that the association has no common understanding and alignment of
the metrics discussion (Goetz, 2015).
The Wave 2 pilot project is again conducted in collaboration with McKinsey, where the
metrics will be evaluated at selected sites to enlarge the knowledge base and extend the
correlation analysis. Initial results are expected in Q1 2016 (ISPE, 2015).

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2.4.4.4 FDA Draft Guidance for Industry

In July 2015, the FDA published its draft guidance for their request for quality metrics.
The draft guidance gives an idea of the FDA’s current priorities and ideas regarding their
quality metrics initiative (FDA, 2015).
The document reflects the aim of the metrics to modernise the agency’s regulatory
oversight of the pharmaceutical industry. The goal of the initiative is a risk-based approach
to inspection scheduling and the avoidance of quality-related drug shortages (FDA, 2015).
In addition, the FDA reflects their intentions for how to use the quality metrics.
Specifically, the FDA seeks a tool to further enhance the effectiveness and efficiency of
inspections and to improve the FDA’s evaluation of pharmaceutical operations (FDA,
2015).
The FDA evaluates the data reported for consistency with the agency’s definitions and
uses all data in the context of the organisation and/or the product. The quality metrics help
the agency to work on early resolutions (FDA, 2015).
The metrics that the FDA intend to use as an objective measure on a product and site level
are as follows: (FDA, 2015)
• Lot acceptance rate
• Product complaint rate
• Invalidated OOS rate
• Annual product review or product quality review on time (FDA, 2015).
In addition to these core metrics, the FDA suggests multiple optional measures:
• Quality culture: “Senior Management Engagement, e.g., was each Annual Product
Review controlled and approved by: Head Quality Unit, Head Operations Unit, both
or neither?” (FDA, 2015, p. 12).
In addition to the quality culture measure, the FDA proposes two more optional metrics:
• CAPA effectiveness: “What percentage of your corrective actions involved re-
training of personnel (i.e., a root cause of the deviation is lack of adequate training)?”
(FDA, 2015, p. 13).
• Process capability/performance: “A ‘yes’ or ‘no’ value of whether the
establishment’s management calculated a process capability or performance index for
each critical quality attribute (CQA) as part of that product’s APR or PQR?” (FDA,
2015, p. 13).

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However, the guideline is a first draft that the FDA wants discussed by researchers and the
industry. There is no data evaluation supporting the metrics and the guidance does not
employ a systems perspective. The FDA draft guidance covers aspects of all the elements
described in previous sections, but it has not been evaluated and tested in a real-world
environment.

Implications for the current research project

I. 16: Quality management systems help companies increase their competitiveness
I. 17: Quality management systems help systematically reduce costs
I. 18: Quality management models provide a guideline for an effective quality
management system
I. 19: The ISO 9000 series and the PQS are widely accepted within the industry
I. 20: Quality metrics research only displays basic ideas about TQM performance
measurement
I. 21: The proposed quality metrics initiatives show no clear overall system perspective
I. 22: In general, the quality metrics discussion lacks a substantiated evaluation of a
quality system model.

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THE ST.GALLEN QUALITY SYSTEM MODEL

3 The St.Gallen Quality System Model

3.1 Design of the St.Gallen Quality System Model

The design phase of the quality system model involves a detailed literature review of
existing constructs and builds upon established approaches, focusing on theoretical
elements of the RBV. In general, the model uses typical elements of existing excellence
models like the EFQM model, the Malcolm Baldrige model and the Toyota Production
System, as detailed in the literature review in Chapter 2. In particular, the St.Gallen OPEX
model is the general basis for the system-based development process of the St.Gallen
quality system model (Kickuth, 2005).
Empirical evidence for the validity of the model in the highly regulated pharmaceutical
industry will be evaluated using a literature review, focus groups and practitioner
interviews. In addition, constant exchange with other researchers in the field of OPEX,
quality and regulatory science in the pharmaceutical industry will develop the
expressiveness of the model. The author of this thesis has presented the results at different
stages at conferences and adapted the model based on feedback.
Fig. 15 summarises the sources of evidence in the quality system development process:

Fig. 15: Design phase of the quality system model – overview of data sources
Chapter 3.2 reflects on the research status from Chapter 2 and summarises the core
literature used in the development process of the St.Gallen quality system model. In
addition, the chapter introduces the relevant elements of the model and explains its content
and interdependencies.

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 THE ST.GALLEN QUALITY SYSTEM MODEL

3.2 Elements of the St.Gallen Quality System Model

As mentioned in Chapter 3.1, the model is based on a literature review and discussions
with other researchers and practitioners. The author aims to develop an integrated systems-
based model that reflects the reality of a pharmaceutical production site, including its
relevant and underlying resources. The literature review focuses on existing literature
streams that deal with the overall production system to evaluate the performance of a
manufacturing site. As mentioned in the previous chapter, the researcher has followed the
elements of existing excellence models and structured his discussion on the elements of
total quality management (TQM), total productive management (TPM) and just in time
(JIT).
First, the relationship between TQM and JIT is discussed, before the interrelation between
TPM and TQM is evaluated based on existing studies. Second, the link that combines the
benefits of TPM, TQM and JIT and their interrelation with company culture is elucidated
in detail. Third, the chapter combines the literature review so as to structure the quality
system model according the detailed elements using the St.Gallen understanding of
systems thinking.

3.2.1 Literature Review

As mentioned in the research status in Chapter 2, Kaynak (1997) explains that financial,
market, quality and inventory performance should be measured to establish a
comprehensive measurement system (Kaynak, 1997).
Furthermore, McKone et al. (2001) mention that any company which deals with more than
one initiative must consider the correlations of their efforts. It makes little sense to consider
the ongoing initiatives independently (McKone, Schroeder and Cua, 2001).
Combining these statements, this section reflects on the literature surrounding the
interrelation between the elements of TPM, TQM and JIT to structure the approach to a
meaningful quality system model for a pharmaceutical production site.
Taking JIT and TQM as elements that coexist within every company, researchers have
identified a significant impact of both initiatives. For example, Snell and Dean (1992) are
unable to identify the benefit of independently implementing both initiatives. TQM, with
its positive impact on process stability and reduction of process variance, lays the
foundation for successful JIT implementation. Furthermore, JIT helps structure production
efficiently, and a stable planning system positively affects quality performance. In
addition, several studies show the statistical impact of TQM and JIT on employee
involvement and development. Implementing both TQM and JIT improves quality cost,
productivity and employee satisfaction.

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THE ST.GALLEN QUALITY SYSTEM MODEL

Vuppalapati et al. (1995) explain the synergies between TQM and JIT, noting that every
core aspect of JIT is already specifically included in TQM. They conclude by suggesting
that a joint implementation of TQM and JIT produces the best results. Combining the
implementation of both initiatives in a logical and well-aligned manner helps companies
improve overall site performance and stability (Flynn et al., 1994; Snell and Dean, 1992;
Sriparavastu and Gupta, 1997; Vuppalapati, Ahire and Gupta, 1995).
Similar to the previous correlation between TQM and JIT, TPM and TQM also show
strong synergies. TQM requires stable equipment with sustainable TPM implementation.
Without stable equipment, the processes will never be smooth and stable. Furthermore,
both initiatives rely on a very strong culture. People are essential resources for the success
of both initiatives. TPM and TQM also provide a company with a set of practices that are
comprehensive for every employee and consistent throughout the entire organisation.
Using these practices consistently will improve overall company performance. This
success is highly dependent on human resources, because employees play a key role in
achieving strong performance (Kaur, Singh and Singh Ahuja, 2012; Konecny and Thun,
2011; McKone, Schroeder and Cua, 1999, 2001; Teeravaraprug, Kitiwanwong and
SaeTong, 2011).
To combine the benefits of TPM, TQM and JIT, a logical sequence needs to be followed.
First, TPM and TQM have to be implemented to ensure stable equipment and stable
processes. After a stable system is in place, JIT can be implemented sustainably. TPM
measures are very helpful for implementing JIT, especially when it comes to stability and
security. Pull production depends completely on stable and flexible equipment (Kaur et
al., 2012; McKone et al., 1999, 2001; Teeravaraprug et al., 2011).
However, these benefits can only be reaped with a healthy, supportive and strong culture
in place. Company culture directly influences the implementation of TPM, TQM and JIT.
All the excellence models described in Chapter 2 discuss and include cultural aspects as
the basis for success. In particular, Kannan and Tan (2005) highlight management
commitment as a key success factor for quality. They also link quality performance to
overall company performance. In their study, Teeravaraprug et al. (2011) describe
employees’ pursuit of continuous improvement as the foundation for TPM, TQM and JIT
implementation. Baird et al. (2011) further explain that company culture directly impacts
the quality performance on a KPI level (Baird, Jia Hu and Reeve, 2011; EFQM, 2013;
International Conference on Harmonisation, 2008; Kannan and Tan, 2005; Liker, 2004;
NIST, 2006; Teeravaraprug et al., 2011; Wheelwright and Hayes, 1985).
Returning to Kanyak’s statement that a comprehensive quality system should include
financial, market, quality and inventory performance in combination with the
interdependencies of TPM, TQM and JIT, this research aims to include aspects from all
of these elements in the quality system model.

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 THE ST.GALLEN QUALITY SYSTEM MODEL

This approach is supported by the interrelations between the elements, where quality is
always central and influenced by the other elements. Furthermore, company culture and
its impact on performance needs to be included in the overall system, as it plays a central
role in quality. Company culture is the basis for the success of all system-relevant
elements.
The following chapter translates the detailed literature review into the St.Gallen Quality
system model.

3.2.2 The St.Gallen Quality System Model

As a general foundation, the quality system model uses the OPEX understanding from the
University of St.Gallen that shows the overall system stability and performance on a site
level, using elements from TPM, TQM, JIT and the effective management system from
the OPEX reference model, detailed in Chapter 2.2.2 (Friedli et al., 2013; Friedli et al.,
2006; Friedli et al., 2010).
Embedded in the OPEX system, the quality management system contains the following
categories: quality enabler, management system performance, quality effectiveness and
quality efficiency. Quality enabler and management system performance reflect company
and employee engagement in the fields of TPM, TQM, JIT and EMS. Quality effectiveness
and efficiency deal with resource consumption and goal attainment associated with
quality. Quality effectiveness also bundles elements of TPM, TQM and JIT, which
influence quality with a performance perspective, as detailed in Chapter 3.2.1. Quality
efficiency addresses the financial and headcount structures of the quality management
system based on elements of TPM and TQM. The integrated systems approach to quality
and excellence reflects the research question of this thesis and represents the impact of
quality on the OPEX performance of a pharmaceutical production site. The quality
management system model is structured like a pyramid, with quality enabler and
management system performance as prerequisites for a successful quality system model.
Cultural aspects are essential for a successful and sustainable quality implementation, as
detailed in chapter 3.2.1. The quality effectiveness and quality efficiency components in
the upper part of the system reflect the measurable elements of the quality management
system model, including quality (TQM), maintenance (TPM) and inventory (JIT) related
measures. The quality management system model itself is embedded in the OPEX system
following the approach by the University of St.Gallen, described in Chapter 2.2.2. The
model reflects the main research question, which will be answered in the upcoming
sections. The entire system integrates OPEX and quality to use synergies of both
approaches. Fig. 16 shows the integrated St.Gallen quality system model.
The system’s resources, competitive advantages and related measures for the individual
elements of the system are discussed in detail in Chapter 4.2.

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THE ST.GALLEN QUALITY SYSTEM MODEL

Fig. 16: The integrated St.Gallen quality system model for the pharmaceutical industry

3.3 Summary
The developed model is used as a basis for discussions with peers about the combination
of quality and excellence and summarises the literature review in Chapter 2. The model is
also used to develop a measurement system for the quality system performance of
pharmaceutical production sites. In addition, the research links the quality management
system model with the OPEX system from the University of St.Gallen to show the
synergies and impact of both elements. The pyramidal structure of the quality management
system model helps discuss the interrelation between individual resource-related
indicators. The overall quality system model reflects the competitive advantage of the
resources and ultimately the impact on the OPEX performance. Finally, the model reflects
the researcher’s approach of using a systems understanding to consider the entire system,
the interrelations between the resources and the benefits of harnessing the synergies
between the individual elements.
Chapter 4.2 explains the St.Gallen quality metric in detail for every category in the
St.Gallen quality system model. The development of the metric with the related data
analysis and validity tests quantitatively answers the MRQ of the thesis. The quality metric
follows the elements of the model. The model is furthermore used as the basis for a cross-
industry benchmarking comparison, detailed in Chapter 4.4. The model helps discuss and
structure the results of the benchmarking study and ensures that all relevant and available
enablers and performance measures are tracked and included in the evaluation.

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

4 The St.Gallen Quality System Analysis

4.1 Data Gathering and Dataset

The research for this thesis is based on data collected from the OPEX benchmarking
project in the pharmaceutical industry. This project was initiated in 2004 at the Institute of
Technology Management at the University of St.Gallen. Over more than a decade, 316
datasets for pharmaceutical production sites were collected. The database itself consists of
pharmaceutical production sites from all over the world, including different company
types, site sizes and production technologies. Fig. 17 shows an overview of the St.Gallen
OPEX database. The database consists of formulation and packaging, API and biotech
sites from research-driven, generic and contract manufacturing pharmaceutical companies.
The production structure represented in the database covers common pharmaceutical
production technologies like solids, liquids, sterile liquids and semisolids. The sizes of the
production sites vary from small to large sites. The majority of sites employ between 100
and 300 full-time equivalents.

Fig. 17: Overview of the St.Gallen OPEX database

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Data collection is questionnaire based. The questionnaire collects information about

production structure, production strategy, implementation of lean practices and KPIs from
the areas of TPM, TQM, JIT and EMS. Kickuth (2005) developed the questionnaire using
a three-step approach. First, he developed a reference framework based on existing
literature and models like the Toyota Production System, the EFQM model and the
Malcolm Baldrige Model, as detailed in Chapter 2.2.2. Based on this model, Kickuth
(2005) developed a questionnaire containing around 370 variables. Of these,
approximately 200 variables are performance figures and reflect company-related
information. Around 170 parameters are measured based on self-assessment (enablers).
For this assessment Kickuth (2005), uses a five point Likert scale ranging from 1 =
“strongly disagree” to 5 = “strongly agree”. Kickuth (2005) validated his model using prior
research and related constructs. The draft questionnaire from Kickuth (2005) was tested in
an interview series with seven experts and based on data from nine pharmaceutical
production sites. After this review phase, the final ambiguous questions were adjusted and
the questionnaire was finalised (Kickuth, 2005).
Over the years, researchers from the University of St.Gallen have only adjusted the
questionnaire in terms of its definitions and the logical sequence of individual elements.
The questionnaire is attached in the appendix 9.1. The OPEX reference model was adapted
in line with new OPEX research findings.
Over the last three years, the St.Gallen OPEX database has grown significantly from
around 235 to 316 datasets. Strenuous data collection efforts saw more than 500 companies
contacted regarding OPEX benchmarking participation during research for this thesis.
Direct contacts included mostly site heads, quality heads, corporate OPEX officers and
those responsible for quality.
This thesis uses data from the last five years to ensure the validity of the evaluation. On
this basis, the final sample consists of 114 datasets. In total, the database comprises 78
formulation and packaging sites, 22 API sites and 14 biotech sites. Of these 114 production
sites, 48 % are from research-driven pharmaceutical companies while 34 % are generic
and 18 % contract manufacturers. The production structure of the sites covers a large
variety of manufacturing technologies which exist in the industry. Most sites are mixed
sites using multiple technologies. The employment structure varies from small to large
production sites. Fig. 18 provides an overview of the structure of the underlying dataset
used for the data evaluations in this thesis.

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Fig. 18: Overview of dataset used to evaluate the quality metrics

The dataset is used for evaluating quality metrics and statistical verification, as well as
for the creation of the St.Gallen quality benchmarking study detailed in Chapters 4.2, 4.3
and 4.4.

4.2 The St.Gallen Quality Metric

Seghezzi et al. (2013) explain that any metrics system utilised by management needs to
reflect information in a comprehensible and summarized format (Seghezzi et al., 2013).
The following chapter examines the literature on measuring performance, with a special
focus on quality-related resources, and introduces the St.Gallen quality metric, based on
the elements of the St.Gallen quality system model 1.
In today’s customer-orientated and quality-focused production environment, it is not
sufficient to only consider financial measurement and accounting models, especially in the
pharmaceutical industry. Indeed, recent studies conclude that traditional performance are
useless (Riccardo Silvi, Monica Bartolini, Anna Raffoni and Franco Visani, 2015).

1 Elements of these metrics are included in Johannes Munding’s bachelor thesis, as part of this research project
supervised by Christian Mänder in 2015

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The study by Perera et al. (1997) suggests that a customer-focused strategy must use non-
financial figures to track company performance (Perera, Harrison and Poole, 1997).
In his study, Chenhall (1997) shows the positive effect of a metric consisting of TQM,
TPM and JIT elements on the overall quality performance at a production site. Every
metric used to measure performance needs to be structured using a balanced approach of
its influencing parameters. “Balanced” in this context means that financial approaches
have to be acknowledged in light of other qualitative and quantitative measures.
Furthermore, every metric should reflect company goals and match the strategic position
of the organisation. In addition, the metric needs to address all relevant stakeholders to
ensure the stability of the system. Discussions and evaluations at the level of individual
KPIs lead to erroneous conclusions and priorities (Chenhall, 1997; McAdam and Saulters,
2000).
Saraph et al. (1989), Flynn et al. (1994) and Ahire et al. (1996) share the opinion that the
following elements should by fundamental to every quality metric:

• Top management support

• Product design process
• Customer relationship
• Process flow management
• Supplier relationship
• Quality data and reporting
• Workforce management
• Role of the quality department
• Employee attitudes and behaviour
• Benchmarking (Ahire et al., 1996; Flynn et al., 1994; Saraph et al., 1989).
These elements guide this thesis’ approach to structuring the metrics, with a special focus
on quality-related resources and their impact on a firm’s competitive advantages. To
evaluate the metrics, this thesis uses the elements of the quality system model detailed in
Chapter 3.2. The elements of the metric are based on a literature review and part of the
St.Gallen OPEX database consisting of 316 datasets for pharmaceutical production sites.
The quality metric consists of both KPIs and qualitative enablers (Friedli et al., 2013;
Friedli et al., 2006; Friedli et al., 2010).
Seghezzi et al. (2013) propose to sort the variables into categories and sub-categories.
They explain that this should come first when creating any metric system (Seghezzi et al.,
2013).

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The aggregation of the individual elements of the metrics is based on extensive interviews
with other researchers, regulatory authorities and practitioners to meet the business
requirements of the pharmaceutical industry. Fig. 19 shows the different influencing inputs
for the metrics development process.

Fig. 19: Perspectives on the design phase of the St.Gallen quality metric
The elements of the metric are structured according to the St.Gallen quality system model
introduced in Chapter 3.2. As detailed in the previous chapter, the quality management
system is divided into the categories of quality enabler, management system performance,
quality effectiveness and quality efficiency. The model sub-categories reflect a typical
pharmaceutical end-to-end setup, typical costs and FTE structures and quality engagement
measures. In addition to the elements of the quality management system, the specifics of
the pharmaceutical industry require a compliance-based metric which will be introduced
in the following section.
The compliance metric reflects the performance and stability of the quality system at a
pharmaceutical production site. The quality effectiveness element with its four sub-
categories describes performance indicators related to quality with an end-to-end
perspective. The quality efficiency metric addresses the cost and headcount structures
related to quality. The quality engagement category, with the sub-categories of quality
enablers and management system KPIs, evaluates the level of quality engagement of a
site’s workforce. Every category and sub-category consists of measures taken from
elements of TPM, TQM and JIT, harnessing the positive interdependencies described in
the literature review in Chapter 2.

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Table 8 gives an overview of the elements of the St.Gallen quality metric 2.

Table 8: Categories and sub-categories of the St.Gallen quality metric

Category Sub-category
Compliance Metric Internal compliance
Market actions
Regulatory actions

Quality Effectiveness Supplier reliability

Production stability
Delivery quality
Customer quality

Quality Efficiency Cost structure

Headcount structure

Quality Enabler Preventive

Management commitment and company
culture
Continuous improvement

Management System Performance System performance indicator

The following chapters explain the main categories of the St.Gallen metric in detail. The
KPIs and enablers for the individual sub-categories are discussed, along with their impact
and general origins.

2 The quality metric, developed during the research period of Christian Mänder, was presented by Prof. Dr. Thomas
Friedli at the 2nd FDA/PQRI Conference on Advancing Product Quality on October 6th, 2015 in Bethesda, USA

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

4.2.1 Quality Compliance

The top two KPIs from a study from Shabaninejad et al. (2014) related to the development
of an integrated performance measurement model for the pharmaceutical industry are:

• Number of recalled products

• Number of internal audits / Planned internal audits (Shabaninejad et al., 2014).

The St.Gallen team used this research to structure the compliance metric. Shabaninejad et
al. (2014) also address internal and external aspects in their approach. However, simply
using the two suggested compliance related measures from Shabaninejad et al. (2014)
provides an insufficient level of detail for a discussion of pharmaceutical compliance.
Torkko et al. (2013) adds observations from internal audits, partner audits, health authority
audits and the number of CAPAs closed in the target time. This approach enlarges the
compliance metrics to a broader set of measures (Shabaninejad, Mirsalehian and
Mehralian, 2014; Torkko, Linna, Katajavuori and Juppo, 2013).
Based on four interviews with practitioners, metrics from Shabaninejad et al. (2014) and
Torkko et al. (2013) were enlarged and adapted. The additional elements reflect the
existing compliance metric of an international operating pharmaceutical company. The
metric consists of internal, external, market and regulatory elements. Internal compliance
metrics are determined via the number of CAPAs, the number of critical and non-critical
overdue CAPAs, the number of observations from health authority inspections and the
number of observations from internal audits. The external compliance metric is structured
using public data from the FDA. The market metric addresses the number of recalls and
the number of supply stops. The metric for regulatory actions includes the number of 483s
and the number of warning letters from the FDA. The metric is further structured to ensure
best availability of data from pharmaceutical companies’ systems. The St.Gallen
compliance metric needs further investigation with a representative dataset. However, this
thesis provide a valid metric which lays the foundation for further data collection.

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Table 9 shows an overview of the St.Gallen compliance metric:

Table 9: St.Gallen compliance metric

Sub-category Metric/KPI
Internal Compliance Metric Number of CAPAs
Number of non-critical overdue CAPAS
Number of critical overdue CAPAS
Number of observations of health authority
inspection
Number of observations of internal audits
External Compliance Metric
Market Actions Number of recalls
Number of supply stops
Regulatory Actions Number of warning letters
Number of 483s

4.2.2 Quality Effectiveness

The quality effectiveness category addresses the degree of goal attainment in the context
of quality-related indicators. The metric focuses on the pharmaceutical value chain,
looking at the supply side, internal elements and the customer perspective.
Kaynak (2003) in particular takes a holistic position in her discussion of quality. She
summarises four core practices related to quality, namely data, supplier quality, product
design and process management. The data element focuses on data quality, data collection,
monitoring methods and the use of data for quality improvements. In addition, supplier
management is central to many studies to ensure the high quality of supply materials and
the establishment of long-term relationships with the goal of cooperative partnerships with
reliable suppliers. Process management aims for clear specifications and process designs
to ensure stability. Furthermore, process design affects production schedules along the
whole supply chain. The process-relevant elements deal with process and production
stability and delivery quality and stability (Flynn et al., 1995; Gotzamani and Tsiotras,
2002; Kaynak, 2003; Torkko et al., 2013).
Another study conducted by Baird et al. (2010) investigates the impact of quality elements
on operational performance and summarises potential benefits. Specifically, the study
highlights the importance of supplier quality, process and production quality and inventory
management.

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The main positive impacts on the quality system are summarised as follows:

(1) Supplier management and process management improve inventory performance

(2) Quality data and quality reporting have a direct influence on supplier quality
performance.
(3) Inventory management positively influences supplier quality management (Baird, Hu
et al., 2011).

All the elements focus on supplier, production or delivery stability using elements from
most categories of TPM, TQM and JIT. Stable equipment leads to stable processes, and
both effect inventory performance (Baird, Hu et al., 2011).
In general, stable processes positively influence supplier quality performance, quality
performance and inventory performance. In particular, inventory performance is highly
dependent on the production schedule and forecast accuracy. This fact validates the use of
JIT elements in the context of quality system performance at a pharmaceutical production
site (Friedli et al., 2013; Friedli et al., 2006; Friedli et al., 2010).
The measures chosen in the quality effectiveness metric are based on data available from
the St.Gallen OPEX database. The relevant performance indicators were identified
through discussions and interviews with other researchers and practitioners.
The metric itself goes beyond the measures proposed in the literature and reflects data that
is available for most pharmaceutical companies. The metric is structured along the four
categories of supplier reliability, production stability, delivery quality and customer
quality. Table 10 provides an overview of the sub-categories and their related measures.
The KPIs have standard definitions and are comparable throughout the industry. Specific
production environments and production structures can be considered, and the underlying
data sample can be individually adapted.

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Table 10: St.Gallen quality effectiveness metric (Friedli et al., 2013) 34

Sub-Category Metric/KPI
Supplier Reliability Service level supplier
Supplier complaint rate
Production Stability Overall equipment effectiveness
Unplanned maintenance
Right first time
Rejected batches
Scrap rate
Deviations per batch
Deviation closure time
Delivery Quality Forecast accuracy
Production schedule accuracy
Service level delivery
Customer Quality Customer complaint rate

4.2.3 Quality Efficiency

The quality efficiency category consolidates both financial and headcount measures.
Kaynak (1997) describes financial performance as one of the key measures that must be
investigated in a comprehensive measurement system. Therefore, the cost structure, which
affects the efficiency of the quality system, is considered in the St.Gallen quality metric.
Following the literature review in Chapter 3.2, the efficiency evaluation considers factors
which affect equipment stability, such as process stability. The quality and maintenance
departments are the relevant equipment and process stability cost centres.
Therefore, the financial aspects of the efficiency metrics consider the quality cost per
overall cost, the maintenance cost per overall cost and the preventive maintenance cost
(Kaynak, 1997; Torkko et al., 2013).
Despite these financial factors, the headcount structure needs to be part of every efficiency
evaluation. Employee empowerment and efficient use of resources are important measures
to reflect departmental efficiency at production sites (Srivastava, 2001).

3 The quality metric, developed during the research period of Christian Mänder, was presented by Prof. Dr. Thomas
Friedli at the 2nd FDA/PQRI Conference on Advancing Product Quality on October 6th, 2015 in Bethesda, USA
4 Elements of these metrics are included in Johannes Munding’s bachelor thesis, as part of this research project
supervised by Christian Mänder in 2015

66
 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The St.Gallen metrics adopt concepts from the literature dealing with headcount structures
of quality departments. Therefore, the quality efficiency metric consists of the share of
quality full-time equivalents (quality control and quality assurance) per overall full-time
equivalent to get an idea of the efficiency of the resources in place. The overall quality
efficiency metric is calculated as the average of the financial and headcount measures.
Table 11 gives an overview of the St.Gallen quality efficiency metric:

Table 11: St.Gallen quality efficiency metric (Friedli et al., 2013) 56

Sub-Category Metric/KPI
Cost Structure Quality cost/Overall cost
Maintenance cost/Overall cost
Cost for preventive maintenance
Headcount Structure FTEs QC/Overall FTE
FTEs QA/Overall FTE

4.2.4 Quality Engagement

The St.Gallen quality engagement element is a specific way to reflect the cultural aspects
of a pharmaceutical production site. Company and employee engagement are discussed in
various ways, depending on the organisation. In this thesis, engagement is a reflection of
enabler implementation levels and KPIs dealing with company and employee engagement.
In general, quality has a special link to culture. Powell (1995) highlights that quality
represents an organisation’s company culture. He emphasises the direct interrelation
between culture and quality. However, company culture is a much more complex construct
than just practices. Therefore, it is necessary to find a way to make trends in culture-related
indicators visible. Some enabler-based initiatives help represent company culture.
Furthermore, selected performance indicators serve as countermeasures to scrutinise the
enabler category (Friedli et al., 2013; Friedli et al., 2006; Friedli et al., 2010; Powell,
1995).
Taking both aspects into consideration, the St.Gallen quality engagement score is
separated into two elements. The quality enabler section uses a Likert scale to identify a
company’s efforts in initiatives to enhance equipment and process stability. Management
system KPIs serve as a countermeasure to the success of the enabling initiatives.

5 The quality metric, developed during the research period of Christian Mänder, was presented by Prof. Dr. Thomas
Friedli at the 2nd FDA/PQRI Conference on Advancing Product Quality on October 6th, 2015 in Bethesda, USA
6 Elements of these metrics are included in Johannes Munding’s bachelor thesis, as part of this research project
supervised by Christian Mänder in 2015

67
THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Both aspects contribute to the score for the St.Gallen quality engagement metric.
Table 12 shows the basis for the St.Gallen quality engagement assessment:

Table 12: St.Gallen quality engagement metric

Category
Quality Engagement Quality enabler
Management system performance
indicators

Section 4.2.4.1 explains the quality enabler metric, while Section 4.2.4.2 deals with the
management system KPIs.

4.2.4.1 Quality Enabler

Kaynak (2003) identifies product design, supplier management and process management
as three of the four core practices of quality management. In addition, Teeravaraprug and
Kitiwanwong (2011) identify 5S, Kaizen, preventive maintenance and company culture as
very important to discussions about quality management. In the ISO 9000 series,
“standardisation” is given as a key lever for improvements within a company (ISO
9000:2015, 2015; ISO 9001:2015, 2015; ISO 9004:2009, 2009; Kaynak, 1997;
Teeravaraprug et al., 2011).
Summarising the literature input, in combination with interviews with senior researchers,
the quality enabler metric is structured along the sub-categories of preventive,
management commitment and continuous improvement, while the individual metric for
each sub-category addresses the detailed elements from the literature.
Table 13 reflects the sub-categories and individual metrics from the quality enabler metric.

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Table 13: St.Gallen quality enabler metric (Friedli et al., 2013) 78

Sub-Category Metric/Enabler
Preventive Preventive maintenance
Housekeeping
Process management
Cross-functional product development
Supplier quality management
Visual management
Planning adherence
Functional integration
Management Commitment Management commitment and company
culture
Continuous Improvement Customer involvement
Employee involvement and continuous
improvement
Standardisation and simplification

4.2.4.2 Management System Performance Indicators

Sriparavastu and Gupta (1997) describe the positive impact of employee empowerment on
quality and inventory performance. The quality and quantity of suggestions is an important
measure to reflect workers’ empowerment. Absence and turnover rates reflect cultural
aspects of a working environment. Highly educated resources are counted as a competitive
advantage which leads to a highly motivated workforce. Specific cultural countermeasures
linked to performance need to be considered to ensure the integrity of self-assessed data.
There are multiple literature sources which deal with performance measures related to
employee engagement with quality (Sriparavastu and Gupta, 1997; Teeravaraprug et al.,
2011). This thesis uses management system performance indicators as countermeasures to
investigate employee motivation and working environment at pharmaceutical production
sites. In addition, qualification and training levels are considered important measures for
investigating the level of investment in human resources.

7 The quality metric, developed during the research period of Christian Mänder, was presented by Prof. Dr. Thomas
Friedli at the 2nd FDA/PQRI Conference on Advancing Product Quality on October 6th, 2015 in Bethesda, USA
8 Elements of these metrics are included in Johannes Munding’s bachelor thesis, as part of this research project
supervised by Christian Mänder in 2015

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The specific measures are based on the literature and are aggregated using interviews with
other researchers and practitioners.Table 14 shows the system performance indicators and
underlying KPIs.

Table 14: St.Gallen system performance metric (Friedli et al., 2013) 910

Sub-Category Metric/KPI
System Performance Indicators Quantity of suggestions
Quality of suggestions
Sick leave
Training
Level of qualification
Level of safety
Employee turnover

4.2.5 St.Gallen OPEX Performance

The St.Gallen OPEX reference model and the underlying OPEX performance metric have
evolved over the last decade at the Institute of Technology Management at the University
of St.Gallen. The St.Gallen OPEX performance calculation is based on a technical sub-
system employing elements from TPM, TQM and JIT. For the OPEX performance
calculation, various KPIs from the technical sub-system are considered, measuring
maintenance, quality and inventory factors (Friedli et al., 2013; Friedli et al., 2006;
Kickuth, 2005). Fig. 20 shows the technical sub-system of the OPEX system with the
related sub-categories of TPM, TQM and JIT.

Fig. 20: Technical sub-system of the St.Gallen OPEX model (Friedli et al., 2013, Friedli
et al., 2006, 2006; Kickuth, 2005)

9 The quality metric, developed during the research period of Christian Mänder, was presented by Prof. Dr. Thomas
Friedli at the 2nd FDA/PQRI Conference on Advancing Product Quality on October 6th, 2015 in Bethesda, USA
10 Elements of these metrics are included in Johannes Munding’s bachelor thesis, as part of this research project
supervised by Christian Mänder in 2015

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Across the three technical categories, a total of 23 KPIs are considered for the OPEX
performance calculation. The TPM category contains indicators measuring equipment
stability. The TQM element reflects performance figures related to stable processes.
Finally, the JIT component contains indicators for investigating inventory levels (Friedli
et al., 2013; Friedli et al., 2006; Friedli et al., 2010). Table 15 summarises the KPIs for
each category.

Table 15: The St.Gallen OPEX performance metric (Friedli et al., 2013)

Sub-Category Metric/KPI
TPM Performance OEE
Time for set up and cleaning
Unplanned maintenance
Maintenance cost per overall cost
TQM Performance Customer complaint rate
Yield
Right first time
Rejected batches
Scrap rate
Supplier complaint rate
Deviations per batch
Deviation closure time
Quality cost per overall cost
JIT Performance Forecast accuracy
Production schedule accuracy
Replacement time
Raw material turns
Work in Process Turns
Finished good turns
Order lead time
Production lead time
Total changeover time
Service level delivery

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4.2.6 Summary and Conclusion

The St.Gallen quality metric is based on an extensive literature review that has been
refined through interviews, discussions and close exchanges with other researchers and
practitioners from the pharmaceutical industry. Data was collected from various sources
over the course of three years. To evaluate the data, the triangulation approach suggested
by Patton (2002) was used to combine the outcomes of the data sources. In particular, the
external perspective of other researchers and practitioners played an essential role in the
metric development process. In addition to this expert input, common methods related to
metric assessments were analysed and the outcomes triangulated (Patton, 2002).
The development process of the metric followed an iterative process with multiple
literature reviews and refinement steps. Table 16 shows an overview of the most influential
papers for the quality metric development process.

Table 16: Overview of relevant literature used for the St.Gallen metric

The quality metric consists of a comprehensive set of variables that reflects both the
stability of the quality system at a pharmaceutical production site and compliance
performance as countermeasure for this stability. Furthermore, the quality metric is
correlated with overall OPEX performance from the University of St.Gallen. The metric
considers quality-related resources and evaluates the competitive advantage that affects
overall site performance. The metric itself is in line with industry and regulatory
approaches which are currently discussed within the pharmaceutical industry the related
associations. The metric captures efficiency figures that, in combination with the
effectiveness score, provide an indication of the degree of resource consumption within
the quality system.

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Cultural aspects are covered by the metric by using enabling factors to identify priorities
and efforts in the field of quality and system performance indicators as countermeasures
to scrutinise a site’s management system performance. These elements reflect the systemic
approach of the metrics in line with the research goal.
The next chapter tests the St.Gallen quality metric based on the latest 114 datasets from
the University of St.Gallen OPEX database. The metric itself and its impact on the OPEX
performance is evaluated using statistical path analysis.
Chapter 4.4 explains how to analyse the data to reflect the performance of a specific
pharmaceutical production site and gives an idea of the potential for industry comparisons
with a direct link to the highest and lowest performing sites in the data sample. The
aggregation and visualisation of the metric results are also discussed in detail.

4.3 Path analysis: St.Gallen Quality Metric Evaluation

The following section evaluates the St.Gallen quality system using the set of quality
metrics established in chapter 4.2. As the basis for the evaluation and verification of the
metrics, the latest 114 datasets from the St.Gallen OPEX database which display the
highest data quality are used. The model and the metric are evaluated using statistical path
analysis. Section 4.3.1 introduces the method and explains the individual elements
necessary for its execution, while Chapter 4.3.2 conducts the path analysis. Section 4.3.3
summarises the main findings of the evaluation.

4.3.1 Introduction – Path Analysis

Blalock (1985) introduced the path analysis procedure developed by Simon (1954) into
social science research as a way to test causal models. The goal of the analysis is to identify
the relationships among observed variables using a quantitative approach that tests the
theoretical model created by the researcher. The path analysis uses a stepwise multiple
regression algorithm that evaluates the interdependencies between the elements. The
analysis ends when the regression of all independent variables on the dependent variable
is concluded (Blalock, 1985; Schumacker and Lomax, 2010; Simon, 1954; Tacq, J. J. A,
1997; Walser, 2012).
Multiple regressions require a correlation matrix, since correlation between the variables
is an indicator of a causal link. Without this correlation, it makes no sense to conduct the
evaluation. The correlation matrix shows whether the variables are interdependent.
However, the correlation matrix is only an indicator of causation; it cannot show its effects.
At this point, regression analysis is necessary to further investigate the relationships
(Schendera, 2008).

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Path modelling starts by specifying the model using arrows to link the variables, the sub-
categories, categories and the dependent variable to structure the path for the evaluation
(Maruyama, 1998; Schumacker and Lomax, 2010; Walser, 2012).
Next, the regressions have to be analysed to interpret the data and specify the path
coefficients that reflect the results of the analysis. Ultimately, the path diagram allows the
researcher to evaluate and interpret any causation within his construct (Maruyama, 1998;
Schendera, 2008; Schumacker and Lomax, 2010; Tacq, J. J. A, 1997; Walser, 2012).
For this thesis, path analysis is used to evaluate the causal model of the St.Gallen quality
metric, which investigates the impact of quality on a pharmaceutical company’s OPEX
performance.
To evaluate the path analysis, IBM SPSS Statistics 23 software was used. 11 This software
contains the relevant tools and applications needed to test data validity and evaluate the
path diagram.

4.3.2 Statistical Analysis

Chapter 4.3.2 explains the statistical analysis used to verify the quality metrics model in
detail. To check the validity of the model, a wide array of different statistical tests must be
conducted. For a metrics system, multiple regression analysis is the best fit, because it
allows checking of one dependent variable and multiple independent variables, which
precisely matches the requirements of a metrics system that aggregates several individual
metrics to produce an overall score (Fox, 2008; Maruyama, 1998; Schumacker
and Lomax, 2010).
However, using multiple regression analysis requires the underlying data to comply with
several requirements to ensure the results are not skewed (Backhaus, 2011).
Therefore, a pre-test was conducted to check the data quality and validate the data. Second,
a detailed multiple regression analysis with path analysis is described, and each step is
explained using an example to demonstrate the results. A detailed analysis of all elements
of the path analysis is attached in the appendix 9.2. Finally, the results of the path analysis
are summarised in section 4.3.3 and the implications of the statistical analysis are
discussed in detail.

11 http://www-01.ibm.com/support/docview.wss?uid=swg24038592

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4.3.2.1 Pre-Test – Data Quality Check

The path analysis uses the logic of multiple relationships and therefore requires statistical
analysis using multiple correlations and multiple regressions. To validate the data quality
for these statistical evaluations, five tests have must conducted and validated. First, the
data set has to be tested for multivariate normality. Second, the data needs to be tested for
linearity. Third, the data set needs to be analysed for homoscedasticity. Fourth, a test for
no auto correlation needs to be conducted and last a test for no multicollinearity needs to
be performed (Backhaus, 2011).
The following describes the individual tests in detail and discusses the results. For all five
tests, the four categories of the quality metric are defined as the independent variables and
the OPEX performance score as the dependent variable.
4.3.2.1.1 TEST FOR MULTIVARIATE NORMALITY
In general, multivariate normality represents the normal distribution along several
dimensions. To test the assumption of normal distribution visually, a histogram and a P-P
plot can be used. In addition, a Kolmogorov-Smirnov test is performed to validate the
assumption of multivariate normality statistically (Fox, 2008; Lilliefors, 1967; Schendera,
2008; Schumacker and Lomax, 2010).
To fulfil the assumption of a normal distribution, the histogram needs to show a Gaussian
curve without any tailing or fronting. The P-P plot should show all data points hugging the
bisecting line of the plot. The Kolmogorov-Smirnov test needs to meet two criteria. First,
the hypothesis of the test is that the data is normally distributed. Therefore, the extreme
0.886
values need to be below the critical value of at a significance level of 95%. The critical
√𝑛𝑛
value of more than 30 elements is extracted from a table provided by Lilliefors (1967).

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Fig. 21 shows the table of critical values for the Kolmogorov-Smirnov test.

Fig. 21: Critical values for the Kolmogorov-Smirnov test (Lilliefors, 1967)
Second, the asymptotic significance has to be higher than 0.05 at a significance level of
95%. Those conditions are the prerequisite for accepting the hypothesis and supporting
the assumption of multivariate normality (Brosius, 1998; Fox, 2008; Lilliefors, 1967;
Schendera, 2008).

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The histogram of the data points of the dependent variable “OPEX Performance” shows a
good Gaussian curve (Fig. 22).

Fig. 22: Histogram of OPEX performance

The P-P plot of the data points is shown in Fig. 23. All data points are distributed close to
the bisecting line of the P-P plot of the dependent variable “OPEX performance”.

Fig. 23: P-P plot of OPEX performance

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THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Both visual analyses show that the assumption of multivariate normality cannot be
rejected. The Kolmogorov-Smirnov test was performed to confirm and double check the
visual tests described above. To perform the test, SPSS was used, which offers the
possibility to use the results of a test as part of overall data analysis. The following
provides an example of a result for the dependent variable “OPEX Performance”.
Fig. 24 shows the results of the Kolmogorov-Smirnov test from the SPSS analysis.

Fig. 24: The Kolmogorov-Smirnov test – OPEX Performance

0.886
As described above, in order to support the hypothesis, all values have to be below .
√𝑛𝑛
In the case of n=74 the values have to be below 0.102995. The relevant value in our data
analysis is the absolute most extreme differences value, which for OPEX performance is
0.065, below the critical number from the Lilliefors table. In addition, the asymptotic
significance must be higher than 0.05 to validate a significance level of 95%. At 0.200,
the asymptotic significance is considerably higher than necessary. Therefore, the
Kolmogorov-Smirnov test supports the conclusion of the visual tests and confirms the
hypothesis that the data points are normally distributed. Therefore, multivariate normality
is confirmed and the test for linearity can be performed.

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4.3.2.1.2 TEST FOR LINEARITY

To perform a linear regression analysis, which is central to path analysis, a linear
relationship between the dependent and independent variables is required. Therefore, it is
necessary to conduct a test for linearity for every category in the dataset. Furthermore, the
test helps identify outliers that may affect the quality of the results. To test for linearity, a
scatter plot between the independent variables and the dependent variable was created
using SPSS. Since it is not possible to show the linearity of more than two variables, it is
necessary to plot each independent variable separately with its counterpart (Backhaus,
2011; Fox, 2008; Schendera, 2008; Schumacker and Lomax, 2010).
In this case, a test for linearity was conducted for the dependent variable “OPEX
performance” and each independent variable (“Quality Effectiveness”, “Quality
Efficiency”, “Quality Engagement” and “EMS performance”). Interpreting the scatter
plots reveals that all the pairings show a linear relationship.
In addition, the graphs do not show extreme outliers, which had to be eliminated before
any further analysis could be performed. All independent variables show a positive linear
relationship with the dependent variable, which is in line with the logic of the metrics
system dealing with the positive impact of quality-related indicators on the OPEX
performance. Therefore, the assumption of linearity is proven. After confirmation of the
linear relationships, the test for homoscedasticity can be conducted.

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Fig. 25 shows the SPSS results for the scatter plots.

Fig. 25: Scatter plots of the dependent and independent variables

4.3.2.1.3 TEST FOR HOMOSCEDASTICITY

A dataset is homoscedastic if the standard deviations of the error terms are constant and
do not depend on the x-value. Homoscedasticity holds if all random variables in a sequence
have the same finite variance. If homoscedasticity does not hold, this will lead to
overestimating the goodness of fit as measured by the Pearson coefficient in the multiple
regression analysis. This can be tested via a graphic analysis of the residuals in a
standardised format. Analysing the data for homoscedasticity is performed by visual
analysis of the regression of the residuals on the y-axis and the regression of the dependent
variable on the x-axis. In our case, the x-axis reflects the dependent variable “OPEX
performance” (Backhaus, 2011).
Looking at the scatter plot obtained from the underlying dataset in Fig. 26, most of the
data shows that the residuals are evenly distributed around the zero line. In addition, a
heteroscedastic distribution would resemble a triangle, which is not the case for the plot
shown in Fig. 26 (Backhaus, 2011).

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

Fig. 26: Regression of the residuals on the y-axis and the regression of the dependent
variable (“OPEX performance”) on the x-axis
Since heteroscedasticity is not present, the assumption of homoscedasticity can be
supported and the test for auto-correlation can be conducted.
4.3.2.1.4 TEST FOR NO AUTO-CORRELATION
Auto correlation arises when the variables of the underlying construct are not independent
of each other. This means that any explanation derived from a developed model would
overestimate the actual degree of explanation attributable to the model. Auto-correlation
can be tested using the Durbin-Watson test. The Durbin-Watson test has guide values
which need to be considered when interpreting the results of the analysis. The Durbin-
Watson test produces results between zero and four, where values below two suggest
negative auto-correlation and values above two positive auto-correlation. If the test
produces a value of exactly two, no auto-correlation can be detected in the dataset. This is
the perfect result for the Durbin-Watson test. Generally, any results between 1.5 and 2.5
are good enough to support the assumption of no auto-correlation, as results between those
values show there is no or only minimal auto-correlation, which will have no impact on
further statistical evaluations (Backhaus, 2011; Candela and Figini, 2012; Chatterjee and
Price, 1977).

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Using the regression analysis in SPSS, the Durbin-Watson coefficient was calculated. The
results of the analysis are shown in Fig. 27.

Fig. 27: Results of the Durbin-Watson test

The value for the four independent variable categories with OPEX Performance as the
dependent measurand is 1.536. This falls within the 1.5 to 2.5 range which represents no
serial correlation in the dataset (Candela and Figini, 2012; Chatterjee and Price, 1977;
Field, 2013).
However, since the boundaries to support the hypothesis of no auto-correlation are highly
dependent on the sample size, a Durbin-Watson table for larger n was used to further
investigate the auto-correlation (Savin, N. E. and White, 1977).
The table showing the Durbin-Watson statistics for larger n is given in Fig. 28.

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Fig. 28: Durbin-Watson statistic for 1% significance points (Savin and White, 1977)

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For the sample size of n=67 datasets and four regressors, the table shows a value for n=65
of 1.568 as the critical value. This means the datasets show no auto-correlation at all
(Savin, N. E. and White, 1977).
The score of 1.536 for the research data is very close to the no auto-correlation score and
at the upper end of the uncertainty range of 1.568-1.314. Therefore, the assumption of no
auto-correlation is supported and the hypothesis of auto-correlation can be rejected.
Therefore, the test for multicollinearity can be conducted as the final pre-test for the
dataset.
4.3.2.1.5 TEST FOR NO MULTICOLLINEARITY
In the case, that the independent variables of the construct are not independent of each
other multicollinearity is present. This would mean the conclusions derived from the
model were not only based on the individual relationships but also to some extent on the
relationship between the independent variables. For a regression analysis, it is a
prerequisite that the independent variables are entirely independent from each other to
ensure the quality of the statistical results. Therefore, a test for multicollinearity has to be
performed (Backhaus, 2011; Fox, 2008; Lin, 2008; Maruyama, 1998).
The best way to measure multicollinearity is the tolerance value test, which validates the
existence of multicollinearity. The tolerance value should be above 0.1; the closer to one,
the better the results (Backhaus, 2011; Lin, 2008).
To check the assumption of no multicollinearity within the research dataset, the
collinearity statistics in SPSS were used. A standard assumption is that the tolerance value
should be larger than 0.1. Since the variance inflation factor (VIF) is simply the reverse of
the tolerance value, the numbers should be smaller than 10. If the values fall within the
given boundaries, it can be assumed that no multicollinearity is present (Backhaus, 2011;
Lin, 2008).
Fig. 29 shows the results of the SPSS collinearity statistics.

Fig. 29: SPSS collinearity statistics

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 THE ST.GALLEN QUALITY SYSTEM ANALYSIS

The tolerance values of the quality metrics are all above 0.8, and therefore considerably
higher than the critical value of 0.1 and very close to the value of one, which means
absolutely no multicollinearity. Accordingly, the VIF values are all 1.2 and smaller,
therefore much lower than the necessary 10. Summarising the results, the assumption of
no multicollinearity is strongly supported by the data test.
4.3.2.1.6 SUMMARY
All five pre-tests for data quality show that the data sample is valid for further statistical
analysis. This means any conclusions derived from the following statistical analysis are
valid and not based on invalid assumptions.

4.3.2.2 Path Analysis

4.3.2.2.1 INTRODUCTION
The following section explains the statistical data analysis for the proposed quality system
analysis. This analysis is used to prove the validity of the quality metric in a statistical
context. The goal of the path analysis is to show the overall impact of quality on the OPEX
performance of a pharmaceutical production site. Therefore, the analysis answers the main
research question of the thesis.
The software used for the data analysis is IBM SPSS Statistics. The analysed data and the
grouping of the data follows the described St.Gallen quality metrics items detailed in
Chapter 4.2 of this thesis. The analysis is performed using a step-wise approach, where
the entire path of the individual elements is analysed item by item (Maruyama, 1998;
Norman and Streiner, 2003; Schumacker and Lomax, 2010).
First, all elements of the metrics are organised into categories that affect quality and
subsequently OPEX performance. Fig. 30 visualises all the elements and their
interdependencies.

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Fig. 30: List and order within the St.Gallen quality metric
The path analysis uses all layers of the St.Gallen quality metric in its evaluation. All
categories are correlated in comparison to each other by analysing their impact on the next
category. The analysis investigates every possible path from the bottom to the top of the
analysis and shows the overall impact of the quality elements on the OPEX performance
score. Chapters 4.3.2.2.2, 4.3.2.2.3 and 4.3.2.2.5 describe the path analysis for the example
of the quality enabler category. Chapter 4.3.2.2.4 summarises the process for every
category to solve for the path coefficients. In this section, the impact of the individual
categories on the overall quality and OPEX scores is visualised. Finally, the results of the
enabler categories are visualised and interpreted. Chapter 4.3.3 summarises the entire path
analysis, its overall results and its impact on the main research question of this thesis.
4.3.2.2.2 CORRELATION MATRIX
The correlation matrix needs to be calculated for every element, sub-category, category
and for the correlation between the quality metrics and OPEX performance. For all
correlations, the results show R2 values with a sum greater than one. This suggests that the
correlations are not strictly between the individual metrics and the category but also among
the individual metrics. This calls for the use of path analysis to understand the correlation
between the individual metrics and the individual metrics and the categories.

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For the example of the enabler category “Continuous Improvement”, shown in Fig. 31, all
elements show significance at the 0.01 level, which means that the correlation between the
elements and the “Continuous Improvement” category is extremely strong. This
correlation matrix is conducted for every element in the University of St.Gallen quality
metric. Every element in the metric is significant to its category. This supports the first
conclusion of the thesis: that an appropriate metric was selected which can measure the
impact of quality on the OPEX performance.

Fig. 31: Correlation matrix enabler category for continuous improvement

To further support this conclusion, Fig. 32 shows the correlation matrix between the
quality elements and the University of St.Gallen OPEX performance score.

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Fig. 32: Correlation matrix between the St.Gallen quality metric and OPEX performance
The correlation matrix for the main categories in the St.Gallen quality metric and the
OPEX performance shows significant results across all categories. In particular, the
correlation between OPEX performance and quality effectiveness, quality efficiency and
EMS performance is significant at the 0.01 level. The quality enabler category correlation
is significant at the 0.05 level. The detailed correlation analysis is attached in the appendix
9.2.

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After specifying the path diagram as described in Section 4.3.2.2.3, a regression analysis
conducted for all elements to solve for the path coefficients shows the impact of the
individual elements on the sub-categories, categories and OPEX performance. The path
coefficient solving process is discussed in Section 4.3.2.2.4.
4.3.2.2.3 SPECIFICATION OF THE PATH DIAGRAM
This section further investigates the results of the correlation matrix shown in the previous
section. Once again, the quality enabler category is used as an example. To further
structure the relationship among the variables shown in the correlation matrix for the
categories “customer involvement, employee involvement and standardisation and
simplification”, a path diagram needs to be developed that eases the interpretation of the
further analytical results. Since all items in the path analysis are linked to the OPEX score,
it is necessary to start with the OPEX score and work backwards from the individual
metrics to the sub-category level and further to the individual parameters. The different
levels of relationship are labelled along the path using a letter sequence (a,b,c,d) to
structure the diagram. For the Quality Enabler element, the following path diagram is
developed:
a) Relationship between OPEX and the Quality Enabler category
b) Relationship between Quality Enabler and the main categories
c) Relationship between main categories and sub-categories
d) Relationship between sub-categories and individual elements.
Fig. 33 gives an overview of the OPEX score (OPEX), Quality Enabler, Continuous
Improvement (CI), Customer Involvement (Customer), Employee Involvement
(Employee) and Standardisation/Simplification (Standardisation) with its relationships (a-
d).

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Fig. 33: OPEX Score – quality enabler – continuous improvement path diagram
In the next step, the beta values (path coefficients) are calculated using a multiple
regression analysis in SPSS. The results of this evaluation are discussed in chapter
4.3.2.2.4. The evaluation of all other categories follows the same approach and the results
are structured along this logic.
4.3.2.2.4 SOLVE FOR PATH COEFFICIENTS
As mentioned in the previous section, the beta values are calculated stepwise using a
multiple regression analysis. For the multiple regression analysis, it is important that every
path coefficient is considered in the evaluation. The following section starts at the end of
the path (OPEX performance) and follows the path until the individual metrics Customer
Involvement, Employee Involvement and Standardisation/Simplification are reached, to
provide an example of the process of using multiple regressions to solve the path diagram
for its path coefficients and draw a conclusion from the analysis. First, the regression
analysis is conducted for the independent variables Quality Effectiveness, Quality
Efficiency, Quality Enabler and EMS Performance. The dependent variable for this
analysis is OPEX performance. The results show that all predictors have a very high
impact on OPEX performance. In numbers, the predictors are able to describe 62.6 % of
the variance (Adjusted R-squared value, cf. Fig. 34) of the achieved OPEX score, even
though 90 % of the predictors are not part of the OPEX performance calculation. This
result is extremely strong and shows the impact of the quality elements on the overall
OPEX performance. In the next step, the regression calculates the beta values for all
coefficients.

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The beta values reflect the individual impact of the coefficients on the dependent variable
(Schumacker and Lomax, 2010; Walser, 2012).
In our case, Quality Effectiveness (beta value: 0.532) has the highest impact on OPEX
performance, followed by Quality Efficiency (beta value: 0.347), Quality Enabler (beta
value: 0.137) and the Effective Management System (beta value: 0.137). The results of
this first regression analysis are shown in Fig. 34.

Fig. 34: Regression for OPEX vs. quality effectiveness, efficiency, enabler and EMS
performance
The next paths that need to be evaluated are the elements of the sub-categories of the
quality metrics elements Quality Effectiveness, Quality Efficiency, Quality Enabler and
EMS performance. Once again, this detailed regression analysis is shown using the Quality
Enabler category as an example. The detailed regression analysis for all possible paths is
attached in the appendix 9.2.

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The Quality Enabler category consists of three independent sub-categories, namely

Management Commitment, Preventive and Continuous Improvement (independent
variables). The Quality Enabler element itself is the dependent variable. For the sub-
category evaluation, the beta values are once again the relevant measures to identify the
impact of each individual predictor. The regression analysis shows that the Management
Commitment sub-category has the highest impact (beta value: 0.404) on the Quality
Enabler category. This is followed by the Preventive sub-category (beta value: 0.397) and
the Continuous Improvement sub-category (beta value: 0.354).
Fig. 35 shows the results of the regression analysis of the sub-categories.

Fig. 35: Regression for quality enabler vs. management commitment, preventive and
continuous improvement
The next step in the path coefficient analysis is to calculate the beta values of the individual
metrics. Once again, a specific sub-category is used to demonstrate the results. The
Continuous Improvement sub-category is chosen here, as it is the most clearly arranged
and best suited for easy comprehension.

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The sub-category consists of the elements Customer Involvement, Employee Involvement

and Standardisation as independent variables. In the case of individual metrics analysis,
the beta value equals the correlation values, r, of the correlation matrix (Schumacker
and Lomax, 2010; Tacq, J. J. A, 1997; Walser, 2012).
This analysis answers two questions. First, the correlation analysis reflects the impact
order of the individual metrics on the sub-category Continuous Improvement. Second, it
shows the relationships between the individual metrics in the continuous improvement
sub-category. The highest impact on the Continuous Improvement sub-category was from
Standardisation and Simplification (beta value: 0.780). This is followed by Employee
Involvement (beta value: 0.709) and Customer Involvement (beta value: 0.660). The
correlations of the different elements show that Employee Involvement and the
Standardisation and Simplification elements correlate at the 0.01 level (r value=β value=
0.466), which shows a very high statistical significance. The Employee Involvement and
Customer Involvement correlation is significant at the 0.05 level (r value=β value=0.205),
which also shows the positive impact of both elements. Only the Customer Involvement
and Standardisation and Simplification elements show no statistical influence, since most
of those improvement steps are initiated by customers but conducted using internal
resources (r value=β value=0.158). The overall results of the correlation and path
coefficient analysis are shown in Fig. 36.

Fig. 36: Correlation between individual continuous improvement metrics

This section introduced the path coefficient calculation and the specification of the path
diagram. Having analysed all three different levels of the path diagram, it is time to take a
more high-level look at the results of the path analysis and the implications that can be
drawn from these results.

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4.3.2.2.5 VISUALISATION AND INTERPRETATION OF RESULTS

The following section discusses the path diagram investigated in Chapter 4.3.2.2.4. In
addition, it further specifies the generic graphic shown in Fig. 33 with values from the
regression and correlation analysis. For complexity reasons, the paths of the OPEX Score,
Quality Enabler, Continuous Improvement, Customer Involvement, Employee
Involvement and Standardisation/Simplification elements will be explained. Two
statistical values are vital to the path diagram. First, the r value, which reflects the
correlation value, and second, the beta value, which represents the direct effect of a
specific metric. In combination, these values r and β predict further statements. The ratio
β
between beta and r ( ) reflects the proportion of the direct effect of a specific metric. The
𝑟𝑟
product of beta and r, summed across each variable with direct arrows to the dependent
variable, equals the coefficient of determination (R2) (Tacq, J. J. A, 1997).
The r values of the Continuous Improvement sub-category are shown in Fig. 36. The r
values for the Quality Enabler category and OPEX score have to be identified from the
correlation analysis of the individual categories and from the quality metrics/OPEX score
correlation. The Quality Enabler correlation and OPEX Score correlation are summarised
in Fig. 37 and Fig. 38.

Fig. 37: Continuous improvement and quality enabler correlation

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Fig. 38: Quality enabler and OPEX score correlation

The beta values for all elements of the path are calculated using a stepwise regression
analysis in SPSS. The relevant results are the standardised coefficients of beta, which are
shown for the continous improvement sub-category, the Quality Enabler category and the
main element OPEX performance in Fig. 39,Fig. 40 and Fig. 41, respectively.

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Fig. 39: Beta values for the dependent variable “continuous improvement”

Fig. 40: Beta values from the dependent variable “quality enabler”

Fig. 41: Beta values for the dependent variable “OPEX performance”
Table 17 summarises all r and β values for all possible combinations of the explained path
diagram, extracted from Fig. 36, Fig. 37, Fig. 38, Fig. 39, Fig. 40 and Fig. 41.

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Table 17: Overview of correlation and beta values for the path extract

Customer Employee Standardisation/ Continuous

Involvement Involvement Simplification Improvement
Customer r=β=0.21 r=β=0.16 r=0.66; β=0.50
Involvement

Employee r=β=0.21 r=β=0.47 r=0.71; β=0.36

Involvement

Standardisation/ r=β=0.16 r=β=0.47 r=0.78; β=0.53

Simplification

The r value for the Continuous Improvement category in the Quality Enabler category is
0.9, and its corresponding beta value is 0.35. For the Quality Enabler category, the values
in relation to the OPEX score are: r=0.30 and beta=0.18.
The path analysis for this particular path, including all r and beta values is shown in Fig.
42.

Fig. 42: Specified OPEX Score – quality enabler, continuous improvement path diagram
Interpreting the path diagram permits some general statements about the analysed metric.
First, all obtained correlation values are positive. This means that each element in the
analysed path has a positive influence on its category.

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Second, the diagram shows the significance of all correlations and makes the direct effect
of any value on its category visible. Taking the ratios of the beta and r values into
consideration, it is easy to identify the metric with the highest direct effect. In our example,
the metric with the highest direct impact on the Continuous Improvement category is the
Standardisation and Simplification sub-category. Currently, no quality metric for the
pharmaceutical industry has been analysed in such detail. The combination of enablers and
performance indicators for evaluating quality performance and its impact on OPEX
performance shows the power of quality and helps overcome the divide between quality
and excellence.
The following section describes the results for the entire path analysis. Conclusions are
also drawn from the statistical analysis related to this thesis.

4.3.3 Summary and Conclusions

The previous chapters described the stepwise path analysis using an excerpt of the entire
path analysis. The overall path analysis is much more complex and includes a high number
of correlation and regression analyses. For each category, the correlation value, r, the beta
value and the most significant beta value were identified in a stepwise regression. The
analysis shows the impact of individual quality-related resources on the OPEX
performance of pharmaceutical production sites. At the level of the individual metrics, the
elements with the highest impact on their respective sub-categories are:
1) Supplier Quality: Supplier Complaint Rate
2) Production Stability: Rejected Batches
3) Delivery Quality: Service Level Delivery
4) Customer Quality: Customer Complaint Rate
5) Continuous Improvement: Standardisation and Simplification
6) Preventive: Visual Management
7) Management Commitment: Management Commitment and Continuous
Improvement
The sub-categories with the highest impact on their individual quality categories are:
1) Quality Effectiveness: Supplier Quality
2) Quality Efficiency: Quality Cost per Overall Cost
3) Quality Enabler: Continuous Improvement
4) Mgmt. System KPIs: Sick Leave
The category with the highest impact on the overall St.Gallen OPEX score is Quality
Effectiveness. All elements show a positive correlation and therefore have a positive
impact on their respective categories. The full results of the path analysis are shown in
Fig. 43.

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Fig. 43: Path analysis – quality metric and OPEX Score

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The path analysis supports the choice of dimensions for the quality metrics. All elements
show a positive statistical impact on their allocated sub-categories and categories. The
analysis verifies the meaningfulness of the quality dimensions. The evaluation shows that
the right dimensions were chosen to measure the impact of quality on OPEX performance.
In terms of the main research goal of this thesis, the regression analysis of the quality
metrics and the OPEX score is particularly relevant. The results for the regression analysis
show that the quality metric has an overall impact on the St.Gallen OPEX performance,
explaining 62.6 % of all variance in OPEX performance. Taking this fact into
consideration, the path analysis quantifies the impact of quality on OPEX performance
and answers the main research question of this thesis. In addition, the metrics can be used
as a prioritisation tool to evaluate the levers with the highest potential for company
improvement. This clarity surrounding the indicators and enablers with the highest
influence on OPEX performance allows task prioritisation to be more structured and
efficient. Fig. 44 reflects the quantified impact of quality on OPEX performance.

Fig. 44: Impact of quality on OPEX performance

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The next chapter introduces the quality benchmarking tool that compares pharmaceutical
production sites individually with the latest datasets from the St.Gallen OPEX database
and the lowest and highest performers with the data sample to help further answer the main
research question of the thesis.
First, the logic behind the performance calculation will be explained in detail. Second, an
overview is provided of the analytical results and the conclusion from the benchmarking.
Finally, the chapter finishes with an overview of the case studies, where the tool will be
tested and further evaluated.

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4.4 St.Gallen Quality Benchmarking

4.4.1 Introduction
In addition to the statistical analysis developed based on the quality system model and the
St.Gallen quality metric, an Excel-based evaluation tool was developed which allows the
user to systematically benchmark the quality elements of a pharmaceutical production site.
The tool uses the latest datasets of the St.Gallen OPEX database, which provides a
platform for comparison. The database supports individual filters related to the specific
business of participating sites. The structural factors of the questionnaire help companies
create a dataset that allows benchmarking comparisons within a suitable industry sample.
To provide an example of the analysis and results this chapter uses the most recent 100
datasets for comparison. The benchmark itself is structured as described in Chapters 3.2.2
and 4.2. The performance calculation uses the quality metric evaluation for each category
discussed in Chapters 4.2.1 to 4.2.4 . The OPEX performance score calculation follows
the approach of the St.Gallen OPEX Benchmarking explained in Chapter 4.2.5. The target
groups for this benchmark system is managers of pharmaceutical companies who are
interested in creating transparent quality results on a site and network level.

4.4.2 Data evaluation

The raw data used for the benchmarking exercise is both KPI- and enabler-based. The
enablers are assessed using a five point Likert scale and tracked using self-assessment by
the relevant site. Comparisons between sites need relative values; therefore, the KPIs and
enablers have to be transformed to relatively comparable measures. As the enablers
generally already reflect relative scores using a five point Likert scale self-assessment,
only slight adjustments are needed. For comparison purposes, a Likert scale score of five
is considered 100 % and the relative comparison is structured accordingly. To compare
performance elements, a percentile ranking system is used to transform the absolute values
into relative one. It is important to mention that every change in the raw data sheet changes
the relative position of a participating site. The tool was developed using the same 114
datasets used in the path analysis conducted in Chapter 4.3. The percentile system
considers all available data for a category, sorts it and ranks the data for specific sites in
comparison to the entire data sample. Achieving a specific value means the difference
between the achieved value and 100 % reflects the position of the site compared to the rest
of the sample. If a measure is negatively correlated, the absolute value is used to ensure
the correct data interpretation and overall result (Bornmann, Leydesdorff and Mutz, 2013).
Three different approaches are used for comparison purposes. First, the analysis reflects
the absolute values for a production site compared with the top and bottom 10 % of the
dataset.

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The tool does not use the top and bottom 10 % for each individual measure, but uses the
set of high and low performing sites as the basis for comparison. This avoids unrealistic
comparisons and ensures that the benchmarking reflects the reality of actual production
sites. Second, the quantile ranking of an individual site is compared to the top and bottom
ten % of the sample. Third, the relative position is shown compared to the lowest and
highest data in the entire dataset for each individual element. The three different
approaches to comparing the data are shown in Fig. 45.

Fig. 45: Example of benchmarking results visualisation

4.4.3 Benchmarking Results

The following paragraph introduces the benchmarking results and walks through the
quality benchmarking report, explaining the key results of the study. 12
The benchmarking report starts with an introductory section, detailing general features of
the benchmarking exercise and an overview of the St.Gallen OPEX database.
The introduction is followed by an analysis of the cost and headcount structure of the
production site. The conversion costs as a percentage of the total costs for the last year and
the headcount structure are compared with the average of the dataset in the benchmarking
database. In addition, this section evaluates the share of the quality assurance (QA) and
quality control (QC) departments and their ratios to the overall FTEs on site. The shares
of QA and QC employees related to overall FTE numbers form part of the quality
efficiency score calculation. Finally, this section shows the employment structure of the
site, with FTEs employed permanently, temporarily and temporarily employed by a
temping agency.
The next part of the report summarises the overall results of the study. First, the quality
effectiveness score is shown for all sites in the data sample in a graph which highlights the
score of the analysed production site.

12No data shown in this section reflects the performance of an individual production site. It is a mix of data points
to show the visualization and impact of the benchmarking study.

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The quality effectiveness overview is shown in Fig. 46.

Fig. 46: Quality effectiveness score compared to the evaluated dataset

As a main outcome of the study the comparison between the quality effectiveness and
quality efficiency scores in correlation with OPEX performance is shown in an executive
summary. This correlation shows that the higher the quality effectiveness and efficiency
scores, the more likely the sites will have a high overall OPEX performance score. This
fact has already been proved by the statistical analysis. However, the benchmarking
evaluation further proves the high positive impact of quality on the OPEX performance of
pharmaceutical production sites. Sites with low quality performance show lower overall
OPEX performance.
Fig. 47 shows the results of this analysis and graphs the high performing, average
performing and low performing sites (OPEX Performance) from the sample evaluation.

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Fig. 47: Quality effectiveness and efficiency scores in correlation with the OPEX
performance score
The next part of the report, the management summary, reflects the results of the individual
categories using a spider diagram comparing the site’s results with the average score in
the dataset. The spider diagrams reflect the main categories from the St.Gallen Quality
system model, starting with an overview of Quality Efficiency and Effectiveness. The
spider diagrams reflect the consolidated results of the sub-categories from the respective
metric elements. The third spider diagram shows the overview of the aggregated enabler
section and the management system KPIs compared to average industry performance. The
lower section of the management summary shows the overall distribution of sites
throughout the data sample with regard to quality efficiency, effectiveness and quality
engagement. This overview gives an idea of the general basis of comparison across all
categories.
This section is followed by a detailed discussion of the benchmarking results. The results
visualisations are separated into performance indicator evaluations and enabler
evaluations. First, the performance-related benchmarking evaluations are conducted to
reflect the quality effectiveness, compliance and efficiency scores. This evaluation is
followed by a detailed enabler investigation and a management system indicator analysis
that provides the basis for the quality engagement discussion. Finally, the overall results
are reflected and correlated with the St.Gallen OPEX performance for all sites included in
the data sample.

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As described, the first element analysed in the detailed benchmarking section is the quality
effectiveness category. This begins by presenting a spider diagram of the site’s results
compared to the industry average. The spider diagram reflects the average score in the
supplier reliability, production stability and customer quality categories. The aggregated
results reflect the relative comparison of the site’s performance in relation to the entire
sample.
This general overview of the quality effectiveness results is followed by a detailed
evaluation of every element of the quality effectiveness categories. The supplier reliability,
production stability, delivery quality and customer quality sub-categories are evaluated on
the KPI level following the evaluation logic described in Fig. 45. For the supplier
reliability element, the site’s supplier service level and the supplier complaint rate are
compared against the highest and lowest performers in the sample and compared against
peers throughout the entire dataset. The production stability sub-category deals with
stability related-indicators like OEE, percentage of unplanned maintenance, right first time
levels, percentage of rejected batches, the scrap rate, the number of deviations per
produced batch and the deviation closure time. This evaluation also follows the highest
and lowest performer and industry comparison approaches.
The delivery quality section deals with the process stability of a pharmaceutical production
site on a holistic level. The sub-category compares the forecast accuracy, production
schedule accuracy and service level delivery of the benchmarked site against the highest
and lowest performers and the production sites included in the underlying data sample.
The customer quality section addresses the effectiveness and general stability of the
quality system, which evaluates the ability of the quality system to recognise all quality
issues before they reach the customer. In this context, the sub-category measures the
customer complaint rate and benchmarks the figure against industry peers and the highest
and lowest performing sites.
The quality effectiveness category contains the compliance metric, which is structured as
described in Section 4.2.1. The category is analysed using the same logic and uses a
consistent visualisation style for the data comparison. The compliance metric deals with
internal, market and regulatory actions. The internal metrics covers the number of CAPAs,
number of critical overdue CAPAs, number of non-critical overdue CAPAs, number of
observations from a health authority inspection and the number of observations from an
internal inspection. The market action element addresses the number of recalls and the
number of supply stops. The regulatory action score measures the number of warning
letters and the number of 483s received at a site level. The benchmarking tool compares
the figures on a sub-category level relative to the industry average and on an individual
element level with the highest and lowest performers and relative to the rest of the sample.
Compliance evaluation is not included in the overall quality effectiveness evaluation.

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The overview of the consolidated quality effectiveness scores on a sub-category level is

shown in the spider diagram in Fig. 48.

Fig. 48: Data visualisation – quality effectiveness

The cost structure element of the benchmarking report goes beyond the quality efficiency
elements of the St.Gallen quality metric explained in Section 4.2.3 to provide further
insights into the cost structure of the benchmarked site’s maintenance and quality
departments. The maintenance department has a strong direct impact on the stability of the
equipment and processes and needs to be included in the efficiency discussion. In addition,
it is clear there is a direct interrelation between the quality and maintenance departments
with regards to process stability and production schedule accuracy. In addition to the larger
cut-out, the quality efficiency evaluation uses further normalisations to ease the data
interpretation of individual cost figures. The following ratios are analysed:

1. Maintenance cost per direct employee,

2. Maintenance cost per overall cost,
3. Maintenance cost per maintenance employee,
4. Cost preventive maintenance,
5. Quality cost per overall cost,
6. Quality cost per direct employee,
7. Quality cost per quality employee and
8. Quality cost per batch.

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The individual KPIs as detailed are compared to the highest and lowest performing sites
and the sample as a whole. The aggregated evaluation on a sub-category level, shown in
the benchmarking report, reflects the elements which are relevant for the quality efficiency
score calculation. In detail, the cost structure in the spider diagram shows the maintenance
cost per overall cost, the cost of preventive maintenance and the quality costs per overall
cost in a relative site-specific evaluation and in comparison to the industry average.
Fig. 49 shows the spider diagram of the relevant cost figures for the quality efficiency
calculation.

Fig. 49: Data visualisation – cost structure

The next part of the report deals with the evaluation of the quality enabler category,
evaluating the five point Likert scale assessment using a percentage visualisation of the
aggregated results. The elements are summarised into the sub-categories preventive,
management commitment and continuous improvement, which are reflected in the
overview chart detailed in Fig. 50.
The quality enabler sub-categories are further divided into the individual elements of
preventive maintenance, housekeeping, process management, cross functional product
development, supplier quality management, visual management, planning adherence,
functional integration (preventive), management commitment and company culture
(management commitment), customer involvement, employee involvement and
continuous improvement and standardisation and simplification (continuous
improvement).
The individual elements themselves combine multiple questions raised in the context of
each specific element. The preventive maintenance element consists of eight questions
dealing with the implementation level of total productive maintenance.

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The housekeeping component uses three questions to evaluate employees’ cultural

conviction with regard to housekeeping activities. The process management enablers use
eight questions to assess a company’s ability to ensure the stability of its processes. The
cross-functional product development element uses five questions to evaluate the
interaction level between product and process development and the integration of
manufacturing engineers into the development phase of new drug formulations and its
related production processes. The supplier quality management enabler uses seven
questions to address the collaboration level and the importance of quality to supplier
selection and the validation process of incoming goods at a production sites. The visual
management enablers deal in four questions with the implementation level of visual
information tools accessible by a large number of employees. The planning adherence
component uses six questions to scrutinise a site’s ability to proactively deal with a stable
but flexible production schedule involving various stakeholders. The functional
integration aspect uses five questions to assess the site’s degree of cross-training, flexible
workforce and investment in training. The very prominent management commitment and
company culture element deals in ten questions with management commitment to
continuous improvement on a site level, site management’s integration into improvement
activities, the degree of competition on site, the transparency of communication of changes
and new innovations and the engagement level of every employee related to improvement
activities. The customer involvement enablers use six questions to evaluate the degree of
customer integration through customer surveys and to increase the delivery performance
on a site level. The employee involvement and continuous improvement element is another
important section, using eleven questions to assess the integration level of employees into
improvement processes. It reflects the ability of workers to strive for continuous
improvement and deals with the openness of the supervisors’ culture. In addition, the
element measures cross-functionality on site in relation to problem solving processes.
Finally, the standardisation and simplification component use six questions to scrutinise a
site’s efforts to consequently standardise and simplify products, processes and equipment.
In addition, the continuous simplification of operating procedures is assessed, evaluating
best practice sharing efforts within a production site.
All these factors and elements deal with implementation levels which are self-assessed by
the relevant site. Therefore, the elements reflect engagement aspects of a site as valid
indicators for multiple elements under a sensible interpretation.
The individual enablers are detailed in the benchmarking report on a sub-category level
and evaluated against the highest and lowest performers as well as relative to scores for
the entire dataset.

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Fig. 50: Data visualisation – quality enabler

The final category in the benchmarking evaluation is reflected by the management system
indicators. The management system KPIs are based on measures of quality-related cultural
indicators. The KPIs covering the quantity and quality of suggestions, the absence rate
measured as sick leave, the number of training days, the level of employee qualification,
the level of safety, the number of incidents per year and overall employee turnover at a
site level. The radar chart compares the relative position of the site with the industry
average. The individual KPIs are compared against the highest and lowest performers in
the dataset and relative to the rest of the sample. Fig. 51 gives an example overview of the
results for the management system category.

Fig. 51: Data visualisation – management system KPIs

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The spider diagrams are useful for high level discussions with management representatives
and help provide a general overview of the situation in specific categories. For further
explanation, the benchmarking evaluation allows an in-depth look at individual categories
to further specify findings and compare the results with the industry average and the
highest and lowest 10 % of the chosen dataset. Easily comprehensible visualisation of the
results is crucial for further discussion and is the basis for understanding and interpreting
the benchmarking results. An example benchmarking report for a pharmaceutical
production site covering every listed element is attached in the appendix 9.3.
To further specify and visualise the impact of quality on excellence, the report includes a
section that correlates the individual category evaluations with the OPEX performance
score from the University of St.Gallen, as described in Chapter 4.2.5. First, the correlation
between quality effectiveness/efficiency and the OPEX performance score is shown in the
benchmarking evaluation. Second, the quality effectiveness and quality engagement score,
calculated as explained in Chapter 4.2, are visualised in correlation with OPEX
performance. Third, the quality efficiency score and quality engagement score are
correlated with the OPEX performance score. Fourth, the quality performance score
(average of quality effectiveness and efficiency scores) and the compliance score are
correlated with OPEX performance. The correlations show that, across all categories,
quality has a significant positive impact on the OPEX performance of a pharmaceutical
production site. As previously mentioned, the benchmarking exercise supports the
statistical analysis and helps answer the main research question of this thesis. The set of
metrics can show the impact of quality on the OPEX performance of a pharmaceutical
production site. The results of the correlations summarised at the end of the benchmarking
report are shown in Fig. 52, Fig. 53, Fig. 54 and Fig. 55.

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Fig. 52: Site-specific quality effectiveness/efficiency and OPEX performance correlation

Fig. 53: Site-specific quality effectiveness/engagement and OPEX performance

correlation

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Fig. 54: Site-specific quality efficiency/engagement and OPEX performance correlation

Fig. 55: Site-specific quality performance/compliance and OPEX performance

correlation

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4.4.4 Summary and Conclusion

As mentioned in the previous section, the benchmarking study provides transparent
information about specific quality indicators from the St.Gallen quality metric and allows
in-depth evaluation of individual measures. In addition, the study provides a comparison
with the industry average and the highest and lowest performing pharmaceutical
production sites. The study provides a high level management summary and a detailed
element-based evaluation to contributes to pharmaceutical managers’ decision making
processes. The study evaluates a site’s existing resources, competences and competitive
advantages and guides improvement.
In addition, the study supports the statistical analysis with site-based comparisons and
confirms the positive impact of quality on excellence. The benchmarking tool helps
reaffirm the answer to the main research question of the research study. First, the analysis
confirms that the right metrics were selected. Second, the evaluation shows the impact of
quality on excellence. In this case, the impact is not quantifiable through this study.
However, the tangible impact of quality on excellence has already proved via the statistical
analysis in Chapter 4.3.3.
The detailed benchmarking study is the basis for the following chapter, which tests the
metrics in an industry collaborated research project. The following chapters test the
applicability of the St.Gallen Quality System model and its underlying metrics using
multiple real case studies from an international pharmaceutical company.

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5 Applicability of the Quality System Analysis

5.1 Case Study Methodology

In general, case study research has one of three different aims: to describe, test or build
theory. Case study research also allows the combination of qualitative and quantitative
collected data to draw general conclusions from both data sources. Yin (2014) sees case
study research as a particularly good complement to statistical research. Specifically, case
studies are needed to exemplify underlying processes and really understand the analysed
correlations (Eisenhardt, 1989; Yin, 2014; Connie J. G. Gersick, 1988; Eisenhardt, 1989;
Kidder, 2000; Pinfield, 1986).
In this thesis, the theoretical constructs developed in Chapter 3 are tested using multiple
case studies. The case studies aim to investigate the theoretical contribution in a real-world
context to evaluate and further specify its usefulness (Siggelkow, 2007; Yin, 2014).
In this research approach, multiple cases are detailed to draw individual conclusions from
the detailed analysis across all cases to test the theory. A systematic cross-case analysis is
used to detail this comparison. In general, the case study research follows an iterative
process, beginning with planning, designing, preparing, collecting data, analysing data and
sharing data (Yin, 2014).

5.1.1 Case Study Design

The case study design and the positioning of the researcher within this research approach
are very important to support the validity of the results. The proper design and the detailed
context of the case studies are important to evaluate the research item. Yin (2014) suggests
following previously published case study approaches that share a similar background and
purpose (Yin, 1981; Yin, 2014).
The multiple options for case study design discussed in the literature are as follows:
In the design phase, contextual factors and the case itself must be considered. In general,
a single-case design with one case and its contextual conditions or a multiple-case design
with several context conditions and cases are appropriate when designing case studies on
a holistic level. Fig. 56 shows the basic case study design types when following a holistic
approach (Yin, 2014).

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Fig. 56: Basic case study design types for single units of analysis (adapted from Yin,
2014)
Multiple-cases have the advantage that the study is seen as more robust being tested with
several items. Therefore, for this research thesis a multiple-case design that investigates
the different contextual factors of the analysed units is appropriate (Yin, 2014).
For the case study design, especially the replicability of the cases is mandatory. In this
context, the definition of the relevant elements and measures within the cases is very
important. Every individual case must consist of a whole study, discussing all defined
elements, including an individual conclusion. Each case should discuss the stated
proposition in detail and should support (or not) the propositions. The sum of the
conclusions needs to be consolidated in an overall report that is discussed in section 5.1 of
this thesis (Yin, 1981; Yin, 2014).
Fig. 57 gives an overview of the multiple case study procedure and links the importance
of the case study design to the quality of the results.

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Fig. 57: Multiple case study procedure (adapted from Yin, 2014)
The dotted line in Fig. 57 is important, because it represent the feedback loop bringing
experiences from the case study to the researcher’s initial position. If the case studies do
not reflect the researcher’s theoretical position the case study protocol must be redesigned
or the cases reselected (Yin, 2014).
This thesis follows the procedure suggested by Yin (2014) to ensure the quality of the case
study results. This thesis uses six sources of evidence, namely documentation, archival
records, interviews, direct observations, participant observation and physical artefacts.
The triangulation of these data sources yields the input for the cases. In detail, this follows
the approach by Patton (2002), using the following triangulation types:

1) Triangulation of data sources

2) Triangulation of opinions of investigators
3) Triangulation of perspectives on the same dataset (Patton, 2002)

This triangulation strengthens the validity of the construct and supports the theoretical
contribution of the thesis (Patton, 2002; Yin, 2014).

5.1.2 Case Selection

For multiple case study research, case selection is important to ensure that the logic behind
the studies is the same. The cases should predict the research idea and reflect either similar
results or contrasting results with logical explanations. If the cases are contradictory, the
initial set of cases must be reselected and the analysis re-evaluated (Yin, 1981; Yin, 2014).

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The number of cases selected is highly dependent on the necessary number of case
replications the researcher wants in the study. This is left to the researcher’s discretion.
However, the number of cases needs to confirm the stated theory to a satisfactory degree
(Yin, 2014).
Prior knowledge of the desired outcome greatly influences case selection. The cases have
to be identified as supporting the constructs evaluated by the researcher (Yin, 2014).

5.2 Case Studies

5.2.1 Introduction
This chapter aims to test the validity of the developed quality system model and its
underlying quality-related resources in an collaborative research project with industry. In
this context, as described in the previous section, an in-depth multiple case study analysis
will be conducted, warranting a practical application of the theoretical elements to show
the impact of quality-related resources on the OPEX performance of a pharmaceutical
production site.
The case studies represent pharmaceutical production sites that are part of the
manufacturing network of a global pharmaceutical company (Pharma Inc.).
In total, 14 production sites from Pharma Inc. participated in the St.Gallen quality
benchmarking analysis, based on 2014 site-specific data. This analysis is the basis for the
further qualitative specification and validation of the findings. The people involved in the
project are site and quality heads, regional quality heads and two coordinators from the
global strategic quality assurance department. The triangulation of different data sources
described in chapter 5.1.1 is used as a data collection instrument. The researcher performed
thirteen interviews, collected feedback from four feedback sessions, reviewed 14 archival
records and artefacts and summarised direct observations from four workshops to create a
case study database, which forms the basis for the three case studies (Patton, 2002; Yin,
2014).
Eisenhardt (1989) emphasises that selected cases should differ from their environment to
test the applicability of the theoretical constructs. Meredith (1998) states that interesting
extremes should be the indicator that influences the number of cases chosen. He proposes
selecting two to eight cases and highlights the contextual richness of a small number of
cases. Extremes are easier to capture through a multiple case study approach with a small
number of cases (Eisenhardt, 1989; Meredith, 1998).
Based on these assumptions, the researcher selected three production sites from the
original 14, choosing three which are located in different regions and vary in their
production technology, size and results from the St.Gallen quality benchmarking

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evaluation (high, low and average benchmarking results). In addition, the chosen cases
support the prior knowledge of the desired outcome and their context ensures appropriate
case replication. Furthermore, the cases predict the research purpose and reflect the results
of the research idea (Yin, 2014).
Table 18 gives an overview of the selected cases reflecting the technology, overall FTE
number and regional location of the site.

Table 18: Overview of Pharma Inc. case studies

Production Technology Employees (2014) Location

Case A Sterile 602 North America

Case B API 1270 Central Europe

Case C Formulation and Packaging 457 Eastern Europe

5.2.2 Structure of the Case Studies

The structure of the case studies follows the elements of the St.Gallen quality system
model introduced in Chapter 3.2.2.
First, the context of the specific case is introduced by providing background information
of the analysed production site. This background information includes the following
elements:

• Site role within the Pharma Inc. production network

• Production structure
• Headcount structure
• Site specific improvement strategy

Next the elements of the St.Gallen quality system model and quality metrics are reviewed
based on their application to the pharmaceutical production site. This review contains the
following elements:

• First, the quality enabler category, where the implementation level of quality-
related enablers are determined by analysing the site’s self-assessment results.
The enabler category reflects the utilisation rate of internal resources at the site.
• Second, the management system performance category, which identifies current
workforce performance and challenging cultural indicators. Management system
performance shows how effectively internal resources are used.

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• Third, the quality effectiveness category, which deals with performance indicators
along the value chain, starting with supplier reliability and followed by production
stability, delivery quality and, finally, customer quality. This category reflects
how well goals for internal resource use are met.
• Fourth, the quality efficiency category, with quality headcount and cost structures
discussed using a holistic consideration of the results. Efficiency concerns the
degree of resource consumption in a quality context.
• Finally, the company-specific compliance metric is evaluated throughout the
entire Pharma Inc. network to test the validity of the St.Gallen quality metric.

Discussions and analysis of the results employ the case study data from the interview study
introduced in Chapter 5.2.1. Each case study is concluded by reflecting on the implications
for the site. All three case studies are structured in the same way to facilitate the cross-
case comparison in Chapter 5.1.

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Fig. 58 gives an overview of the structure of the case studies.

Fig. 58: Structure of Pharma Inc. case studies

The following section details the in-depth case studies following the structure introduced
in Chapter 5.2.1.

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5.2.3 Case A

5.2.3.1 Background
The site role of Pharma Inc.’s North American site is specialist technology. In particular,
the site can handle high packaging and production flexibility and perform new product
launches. The products manufactured on site are 100 % synthetic. In this context, the site
deals with a large number of different products and batches in both formulation and
packaging operations. Despite the relatively low number of customers, the site receives an
extremely high number of orders, with only 20% of customers receiving frequent delivery.
97 % of customers are located in North America, which reflects the proximity to the target
market. However, the site deals with a complex order and customer structure that affects
internal planning. The share of direct to indirect employees on site is 0.92. The site
comprises 235 production labour and a total of 602 employees. 91.86 % of employees are
permanently employed by Pharma Inc., which demonstrates the continuity of the
employment structure.
In the context of the planned improvement activities, the site aims to increase flexibility
related to market needs and to accelerate new product introductions. In the field of quality,
the site focuses on improvements related to supplier quality performance and reducing
scrap rates. The lead time and on-time delivery rate are subject to improvement in the
site’s manufacturing strategy. Finally, site management are focused on stock reduction,
increased asset utilisation and increased capital investment productivity.
The following section challenges the site’s quality system using the St.Gallen approach,
discussing the individual elements of the St.Gallen quality system model in its site-specific
application. The discussion includes quantitative results from the St.Gallen quality
benchmarking evaluation and qualitative amendments from thirteen interviews.

5.2.3.2 Application of the Quality System Model

5.2.3.2.1 QUALITY ENABLER
The archival record of the North American production site shows an aggregated enabler
implementation level that falls below the industry average. The following sections reflect
the implementation levels of the enabler categories following the elements of the St.Gallen
quality metric, detailed in Chapter 4.2.4.1.
5.2.3.2.1.1 Preventive
Specifically, levels of preventive maintenance, visual management and planning
adherence implementation fall within the lowest ten percent of performers in the data
sample. Only supplier quality management and functional integration efforts show
implementation levels within the top ten percent of performers in the data sample.

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In housekeeping, process management and cross functional product development, the site
shows average implementation results.
For the preventive maintenance category, three main factors lead to the relatively low
enabler implementation level compared to the industry sample. The North American site
is currently not identifying potential bottleneck machines. Furthermore, the bottleneck
machines are not equipped with replacement parts, which would significantly increase
equipment stability. The maintenance department does not assist machine operators in
performing their preventive maintenance tasks. There is no clear cooperation between the
maintenance and production department that enhances both workforces. In addition, most
maintenance tasks are performed by external partners and outsourced where possible.
The visual management implementation lacks performance charts for each production
process that indicate annual performance objectives. In addition, no charts reflect the
current performance status (e.g., scrap rates and so on) and compliance figures. No visual
management tools are visible for the employees on the shop floor.
In the planning adherence category, the implementation level of indicators related to
production stability is relatively low. In particular, no levelling of production capacity
occurs to increase capacity utilisation. In addition, workforce flexibility is limited, making
it hard to adjust production capacity to meet demand changes in the market.
In the supplier quality management category, the implementation level is generally high
across all elements. In particular, the site is guided by a belief in quality as the number one
criterion for the supplier selection process. The site ranks suppliers using a supplier
qualification audit and inspects 100 % of incoming goods.
The functional integration level is particularly high for production employees. Through
job rotation and regular feedback sessions, the management enhances the capability and
acceptance of shop floor employees. In addition, a high degree of investment in training
and employee qualification leads to a high implementation level in this category.
The housekeeping implementation is average. It requires meaningful implementation
throughout the entire site, with dedicated employees aiming to keep their workplace clean.
In terms of process management, the site achieves an average implementation score, with
SPC only partially implemented on the shop floor. However, the implementation levels
for process documentation and consequent root cause analysis are acceptable, leading to
average results compared with the underlying sample. Cross-functional product
development is only partially implemented on the site. Only partly cross-functional teams
are involved in the product and process development phase.
Aggregating the implementation details and priorities detailed in this section produces an
average result in the preventive enabler implementation score.

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5.2.3.2.1.2 Management Commitment

The implementation level within the management commitment and company culture
category is poor. The site does not see achieving high quality standards as the primary task
of the QA and QC departments. Employees do not currently strive to reduce all kinds of
waste, even though plant management proactively empowers them for continuous
improvement. Command and control is fractionally seen as the most effective management
style on site. Most of the elements of the management commitment and company culture
category are only partially implemented, and efforts to increase commitment are relatively
low. In particular, information flow is not well implemented. The communication culture
between different departments and management levels is not as open as necessary.
Problems are not followed to their source to identify the root causes. Employees are only
particularly informed about innovations at an early stage.
The aggregated results in this category shows an implementation level that falls way below
the bottom ten percent of the industry sample.
5.2.3.2.1.3 Continuous Improvement
With the exception of standardisation and simplification, the implementation levels for
customer involvement, employee involvement and CI fall below the scores for the lowest
ten percent of the data sample. The site scores especially poorly in customer involvement.
The site does not survey customer satisfaction, track specific customer requirements or
initiate joint improvement programmes to increase overall performance. On-time delivery
is only partially part of the site’s philosophy. The site has loosely implemented tools and
methods to deploy continuous improvement activities. Suggestion programmes are only
partly driven by shop floor employees. Cross-functional project teams are not
meaningfully working on problem-solving activities. In general, employees are not
consequently involved in continuous improvement activities in a cross-functional way,
which hinders the implementation of a continuous improvement culture.
The site has better results in the standardisation and simplification category as their
strategy is to continuously improve the processes, machines and products. Therefore, the
site employs tools such as standard operation procedures, standardised functional
descriptions and standardised machines and equipment in the production environment.
However, these are not used consequently throughout these areas. This is reflected in the
implementation score, which falls below the top ten percent of the data sample.
5.2.3.2.2 MANAGEMENT SYSTEM PERFORMANCE
Management system performance is evaluating via the performance scores consolidated
in the archival record of the North American production site. These scores follow the sub-
elements of the St.Gallen quality metric, detailed in Chapter 4.2.4.2.

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The site reflects a high level of qualification among employees on site, with a high number
of training days per year per employee. However, the employee turnover and absence rate
is relatively high compared to the rest of the sample. The site shows a high number of
suggestions per employee but is not able to trace the benefits of those improvement
suggestions. In general, the level of safety is very high compared to the sample and the top
ten percent performers.
The results reflect the findings for the implementation levels in Chapter 5.2.3.2.1. The
employees are willing to improve but are not meaningfully involved and motivated to
continuously improve the processes. The partial agreement of one interviewee that the
company cares for its employees is reflected in the relatively high sick leave and turnover
rate. In general, the results show an unclear picture and display the potential for more
consequent enabler implementation.
5.2.3.2.3 QUALITY EFFECTIVENESS
The overall quality effectiveness score, which is calculated using the St.Gallen quality
metric from Chapter 4.2, shows a result at the lower end of the performance range of the
industry sample. The following chapters reflect the individual performance scores for the
sub-categories of the St.Gallen quality effectiveness metric.
5.2.3.2.3.1 Supplier Reliability
Even though it puts a lot of effort into supplier quality management activities, Pharma
Inc.’s North American site is unable to track the performance figures for the service level
of its suppliers.
However, the site is able to review the annual complaint rate of their suppliers, which is
relatively low compared to the rest of the sample. This fact confirms the high
implementation level of their supplier quality management initiatives. Nevertheless,
because of the lack of data, the supplier reliability score is not counted in the overall result.
5.2.3.2.3.2 Production Stability
The production stability sub-category shows substantial weaknesses across all elements in
terms of data availability and performance. Overall equipment effectiveness in both
formulation and packaging falls way below the score of the lowest ten percent of the data
sample. Site data for unplanned maintenance activities in the production processes is not
available for either formulation or packaging. The right first time score is way below the
lowest performers in the sample.
The quality-related indicators collected in this sub-category show deficiencies throughout
the dataset. In particular, the number of deviations per batch and the deviation closure time
show potential for improvement. The scrap rate supports this impression.

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The production stability results reflect the consequence of the enabler implementation,
specifically in the field of company culture. The QA and QC departments strive for high
quality standards which are not implemented at the production site at all. In addition, the
islands thinking between the quality, maintenance and production departments prevents
strong performance in the stability category.
5.2.3.2.3.3 Delivery Quality
The site’s delivery quality sub-category scores show generally moderate results. In
particular, the forecast accuracy has a very positive score compared to the rest of the
sample and the high performers. Production schedule accuracy also paints a positive
picture, supported by the enabler implementation levels described in Chapter 5.2.3.2.1.
However, the service level delivery does not reflect the high values from the planning
figures. Service level delivery falls below the lowest ten percent of the sample. This can
be explained through the previously detailed performance in the production stability sub-
category. The equipment and processes are not stable enough to ensure an appropriate
service level for the delivery process.
5.2.3.2.3.4 Customer Quality
In contrast to the results in the previous sub-categories, the customer complaint rate
reflects a tolerable value that matches the industry average. However, there is a potential
risk related to customer quality, which is clear from the previous effectiveness evaluations.
5.2.3.2.4 QUALITY EFFICIENCY
The quality efficiency category is based on the findings from the previous evaluations.
The site cannot track the cost of preventive maintenance because the preventive
maintenance activities are not traced and supported by the maintenance department. In
addition, the site outsources most maintenance activities to an external supplier, which is
reflected in the maintenance cost per overall cost figure. Nevertheless, control of
maintenance activities is not in the hands of the production site, which is reflected in the
low OEE figures, among others.
In terms of the specialist focus of the site, the quality cost per overall cost are higher than
the industry sample. However, the costs are significantly above the industry level of sterile
manufacturers within the industry. The cost of quality per overall cost are twice as high as
the top ten percent from the University of St.Gallen’s sterile sample.
5.2.3.2.5 COMPLIANCE METRIC
For the compliance metric, Pharma Inc.’s own internal tracking system is used. Pharma
Inc.’s compliance metrics are correlated with the quality score, calculated as the average
of the quality effectiveness and efficiency scores for the University of St.Gallen quality
metric.

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The North American site shows particular weaknesses in the overdue Out of Specification
(OOS), overdue deviations and overdue complaints categories. The results of the
compliance evaluation in correlation with the St.Gallen quality metric evaluation reveals
weaknesses in the system stability of the North American production site.
Fig. 59 shows the evaluation of the combination of the St.Gallen quality metric evaluation
and the Pharma Inc.’s compliance score and shows the weaknesses of the North American
production site. The site’s score is one of the lowest results out of the 14 production sites
participating in the St.Gallen Quality Benchmarking exercise. Both the Pharma Inc.’s
compliance score and the St.Gallen quality effectiveness and efficiency scores support this
statement and reflect similar results.

Fig. 59: Overall result of the quality evaluation of the St.Gallen quality effectiveness and
efficiency scores and Pharma Inc.’s compliance metric – Site A

5.2.3.3 Implications
This case study provides an illustrative example showing the impact of quality-related
implementation levels on performance figures for a pharmaceutical production site.
The enabler assessment of the North American production site with its low implementation
levels explains the performance results of the site’s benchmarking evaluation.

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This is particularly mirrored in the quality-related performance figures, which fall

considerably below the industry average.
The performance indicators related to equipment stability, process stability and production
stability help identify areas for improvement. In addition, the quality-related enabler
implementation levels such as performance indicators fall at the lower end of the industry
average. This fact is confirmed by the relatively low OPEX performance level of the North
American production site compared to Pharma Inc.’s internal dataset and the underlying
industry sample.
Investment in quality-related resources is needed to improve the excellence level and
create a competitive advantage at the site. Overcoming the divide between quality and
excellence can positively influence overall performance and compliance figures. The
combined approach lays the foundation for a stable and robust system that leads to highest
quality with stable equipment and stable processes. These facts are the basis for achieving
an improved manufacturing strategy at the North American production site to reduce stock
and increase the asset utilisation and capital investment productivity.
The comparison between the St.Gallen quality effectiveness and efficiency evaluation and
the compliance evaluation from Pharma Inc. shows similar results.
These implications support this thesis’ goal of evaluating the quality system at a
pharmaceutical production site using a systems approach, by analysing the impact of
system-relevant indicators. The case study confirms that a systems-based approach
provides a detailed picture of the stability of the quality system at a pharmaceutical
production site.

5.2.4 Case B

5.2.4.1 Background
Pharma Inc.’s Central European production site’s role is special technology, producing
almost 10,000 batches of API per year. The site is Pharma Inc.’s largest development and
production site. The products manufactured on site are 40 % synthetic, 23 % bio-
technological and 37 % other products. As a result, the site deals with high external
complexity, handling more than 600 suppliers and 27,000 orders in 2014. In addition, the
site supplies more than 300 customers, of whom only 8.5 % are internal clients. The
sourcing and customer regions are spread all over the world.
The share of direct and indirect employees on site for API is 1.49. The site engages more
than 700 API production FTEs and more than 1,200 employees in total. 96 % of employees
are permanently employed, which represents strong employee-orientated values.

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To improve its manufacturing strategy, the site plans to increase its flexibility, mainly
through key activities in cycle-time reduction and reductions in setup and cleaning time.
In terms of quality improvement, the site is working to reduce process variance through
the consequent implementation of statistical process control and on reducing scrap rates.
In general, the site aims to improve its service level, especially in terms of the on-time
delivery rate. As part of underlying improvement activities, the site intends to increase
asset utilisation and employee productivity throughout the entire value chain.
The following section analyses the site’s quality system using the St.Gallen system
approach, discussing the individual elements of the St.Gallen quality system model and
their site-specific applications. The discussion is based on the case study database
containing quantitative and qualitative data collected during the iterative research process
for this thesis.

5.2.4.2 Application of the Quality System Model

5.2.4.2.1 QUALITY ENABLER
The archival record of Pharma Inc.’s Central European production site shows an
aggregated enabler implementation level that is above the industry average in all
categories. The following sections reflect the implementation levels for the enabler
categories, following the elements of the St.Gallen quality metric detailed in Chapter
4.2.4.1.
5.2.4.2.1.1 Preventive
In the preventive sub-category, the site’s implementation levels are above the top ten
percent of the data sample for all categories. Particularly in the categories of preventive
maintenance, process management, cross-functional product development and functional
integration, the site’s implementation levels are clearly above the scores of the high
performers. The efforts of the maintenance department are directly linked to the objectives
of high quality and planning for compliance. The site has implemented a formal
programme to maintain machines and equipment. The programme and its underlying
checklists for maintenance tasks are posted next to the machines. All maintenance jobs are
well-documented and accessible to every employee. The site avoids external maintenance
services where possible. When management decides to buy new equipment, the machine
operators are involved in the decision-making process. Furthermore, the site has identified
all potential bottleneck machines, which are equipped with additional replacement parts
to increase availability.
The process management implementation level is high across all sub-elements of the
category. The well-defined continuity measures for process quality are directly linked to
the overall plant objectives. Every process has a dedicated process owner who is
responsible for the planning, management and improvements to the processes.

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The process owners use SPC to reduce variance in the processes. Process management
implementation is very mature, partially using process analytical technology for real time
process control.
The site strongly links the product and process development phases and uses knowledge
transfers internally with a standardised procedure. This approach ensures fast knowledge
exchange to establish stable processes. This fact helps the site to shorten the time for
product launches and to avoid significant launch delays. The co-operation between the
R&D and production departments is the lever for this opportunity.
The employees are trained using a dedicated development and qualification programme.
These facts are responsible for the exceptional result in implementation levels for
preventive maintenance, process management, cross-functional product development and
functional integration.
The housekeeping implementation level is above the score of the top ten percent
performers. This is testament to the site’s considerable efforts in keeping the plant neat
and clean. The employees are very much engaged in housekeeping activities and the site
has implemented a checklist that continuously monitors the status of the ongoing activities.
The implementation level of supplier quality management is also very high. All suppliers
who deliver to the site are validated and ranked using supplier qualification assessments
and audits. The site does not inspect 100 % of incoming shipments, but instead inspects
incoming materials based on the past quality performance of the specific supplier.
The site’s visual management implementation level is average. Andon boards and
performance charts are only partially implemented in the production area. However,
technical documents and workplace information are physically accessible for every
employee.
The site team is very aware of the sources of variance in the production schedule and is
consequently working on its elimination. In addition, the site has levelled production
capacity throughout the entire process. Based on these implementations, the site meets its
production goals every day.
The very mature implementation levels for equipment and production stability lead to
results which compete with the top ten percent performers in the data sample.
5.2.4.2.1.2 Management Commitment
Management commitment and company culture implementation levels are slightly below
the scores of the top ten percent of the data sample. However, the implementation level is
way above the industry average. In particular, management commitment is well
implemented. The plant management expends great effort empowering its employees for
continuous improvement and is completely involved in improvement projects. In addition,
the management informs its employees about innovations at a very early stage.

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In general, problems are pursued to their source to identify the primary causes of a failure
and to prevent reoccurrence of the problem. The employees themselves strive for a
consistent reduction in waste for every process. This fact is supported by the open
communication culture with a good information flow between the individual departments
and management levels. However, high quality standards are not seen as the primarily task
of the QA/QC department but as the task of other departments.
The aggregated implementation levels lead to high scores in the management commitment
sub-category.
5.2.4.2.1.3 Continuous Improvement
In the continuous improvement sub-category, the site shows higher implementation levels
across all categories than the top ten percent of the data sample. Implementation levels are
particularly high in employee involvement and continuous improvement.
This starts with the cross-functional involvement of workers in the problem solving
process. All supervisors involve their employees in project teams working on the problem
solving process. The employees themselves have the authority to solve problems directly
when they occur and drive improvement and suggestion programmes. In general, the
company takes a lot of care of their employees. Using the input of all available resources,
the site consequently standardises its processes. Standardisation is the main strategy to
continuously improve processes, machines and products. Optimised operating procedures
are documented and shared throughout the plant to use synergies and share the outcomes
of improvement projects.
In general, the site involves their customers frequently to use their feedback to improve
quality and delivery performance. To fulfil customer requirements to a high degree, the
site performs regular customer surveys. This helps identify the needs of the high number
of customers of the site.
The aggregated results of the implementation levels lead to the site’s high application level
in the area of continuous improvement.
5.2.4.2.2 MANAGEMENT SYSTEM PERFORMANCE
Management system performance is reflected by evaluating the performance scores
consolidated in the archival record of the Central European production site. The
performance scores evaluated follow the sub-elements of the St.Gallen quality metric,
detailed in Chapter 4.2.4.2
The site has a moderate number of suggestions compared to the rest of the sample.
However, the suggestions are of a very high quality and the site has saved an impressive
amount of money through its employees’ improvement ideas. This matches very well with
the continuous improvement push by site management and the consequent involvement of
every single employee in improvement and problem solving project teams.

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The number of training days are average, reflecting the personalised and structured
training schedule per employee. Therefore, the site’s level of qualification is clearly above
the industry average. The high degree of implementation in terms of company culture is
echoed by the very low turnover rate of the site.
The management system performance metric reflects the implementation level of the
enabler categories that are relevant for the company culture very well. This result paints a
picture of a high system performance in the field of quality engagement.
5.2.4.2.3 QUALITY EFFECTIVENESS
The overall quality effectiveness score, which is calculated following the St.Gallen quality
metric described in chapter 4.2, shows a result at the upper end of the performance range
of the industry sample. The following sections reflect the individual performance scores
for the sub-categories of the St.Gallen quality effectiveness metric.
5.2.4.2.3.1 Supplier Reliability
The Central European production site’s overall supplier reliability score is very high
compared to the industry average. In particular, the supplier complaint rate score is
significantly higher than that of the top ten percent of the data sample. The service level
supplier score is also very good compared to the rest of the sample.
These performance indicators match the implementation levels of the supplier quality
management category and the site’s risk-based supplier inspection approach. The
consequent supplier qualification and ranking approach leads to high performance figures
in the supplier reliability category.
5.2.4.2.3.2 Production Stability
The production stability scores show for very high performance figures for all categories.
The OEE score is above the top ten percent of the data sample. The unplanned maintenance
score competes with the high performers on an equal level. The high equipment
availability and high quality standards result in an impressive right first time score. The
high performance figures in the equipment- and process-related stability figures reflect the
high implementation levels in the process management, planning adherence and cross-
functional product development categories.
The quality-related stability figures underline the results for equipment stability. The site
has an extremely low number of rejected batches and deviations per batch. In addition, the
deviation closure time is very good, with results above the top ten percent of the sample.
The production stability elements show impressive results that are supported by the site’s
high implementation levels across all categories. The focus on equipment- and process-
orientated stability initiatives, in combination with a high degree of management
commitment and employee involvement in continuous improvement activities, lead to
high performance figures in production stability sub-category.

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5.2.4.2.3.3 Delivery Quality

The site’s delivery quality score is average. In particular, the service level delivery is
average. However, the production schedule and forecast accuracy reflect solid results. The
performance scores match the implementation level of the planning adherence enabler
category. The production schedule is not currently well-levelled to support a high capacity
utilisation level. This explains the gap in the accuracy figures.
Complementary to the current performance status of the delivery quality, the improvement
in delivery performance is highlighted by the Central European production site in the
improvement plan for their future manufacturing strategy.
5.2.4.2.3.4 Customer Quality
The customer quality score reflects a solid result that highlights the stable quality system
of the Central European production site. Stable equipment and processes in combination
with high implementation levels leads to a performance score with close to zero
complaints.
5.2.4.2.4 QUALITY EFFICIENCY
The scores for the quality efficiency sub-category support the overall picture of a well-
organised and mature production site. The Central European production site achieves,
especially in regard to the location and the special technology role within the Pharma Inc.
network, exceptional results in terms of maintenance cost and quality cost per overall cost.
The high cost for preventive maintenance supports the mature implementation degree of
preventive maintenance activities. However, the high cost also reflects an overestimation
of required efforts compared to high performers from the sample. This figure shows
potential for improvement in terms of the efficient use of resources in the field of
preventive maintenance.
5.2.4.2.5 COMPLIANCE METRIC
For the compliance metric discussion, Pharma Inc.’s internal tracking system is used.
Pharma Inc.’s compliance metric is correlated with the quality score, calculated as the
average of the quality effectiveness and efficiency scores for the University of St.Gallen
quality metric.
In the compliance metric evaluation, the Central European production site only show two
noteworthy potentials for improvement: overdue operational CAPAs and deviations. The
results of the Pharma Inc. compliance assessment show no critical issues across all Pharma
Inc.-specific categories. The results of the compliance evaluation in correlation with the
St.Gallen quality metric evaluation reflects the stability of the site’s quality system.
The site’s compliance score is the highest of the 14 Pharma Inc. production sites
participating in the St.Gallen quality benchmarking exercise.

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Pharma Inc.’s compliance score in correlation with the St.Gallen quality effectiveness and
efficiency score support this statement. This shows that the site achieves high quality
system stability via its equipment- and process-orientated approach.
Fig. 60 shows the evaluation of the combination of the St.Gallen quality metric and
Pharma Inc.’s compliance score, showing the high performance of the production site in
both evaluations.

Fig. 60: Overall results of the quality evaluation of the St.Gallen quality effectiveness
and efficiency scores and Pharma Inc.’s compliance metric – Site B

5.2.4.3 Implications
This case study generally provide an illustrative example of the interrelation between the
enabler and performance sections of the St.Gallen quality metric. The implementation
levels of enablers relevant to the quality system show a direct impact on the performance
indicators of the St.Gallen benchmarking evaluation. The Central European site shows
good results in the relevant indicators for equipment and process stability. Focusing on
stability aspects the site ensures efficient quality operations and motivates its employees
for continuous improvement. The site uses its resources very effective and efficient to
create a competitive advantage that is visible in the achieved performance figures of the
site.

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The OPEX performance of the Central European production site reflects a relatively high
score in the field of special technology plants and confirms the comparatively high results
of the quality analysis.
The mature implementation levels of quality related elements and the high scores in the
effective management and quality effectiveness elements support the assumption of the
researcher related to the positive impact of quality on the OPEX performance of
pharmaceutical production sites.
The correlation of the internal compliance metric with the St.Gallen benchmarking results
show the impact of the St.Gallen quality metric and confirms its significance. The
St.Gallen quality metric gives transparency related to the system stability of the Central
European production site. The metric examines system parameters that affect the quality
and compliance performance at a pharmaceutical production site. In particular, the enabler
assessment paints a clear picture of site priorities, which are reflected in performance
figures. Therefore, the balanced approach of performance indicators in combination with
enablers reflects the real situation at a pharmaceutical production site.

5.2.5 Case C

5.2.5.1 Background
The role of Pharma Inc.’s Eastern European production site is primarily access to low-cost
resources. The production facility produces five billion tablets for 18 different products in
59 different formats. The products manufactured are 100 % synthetic products that are
mainly distributed to customers located in Western Europe and North America. The
external complexity of the site is moderate, comprising around 90 suppliers and 18 internal
customers.
The share of direct to indirect employees on site is 1.57. The site employs 237 production
employees and 457 FTEs. 70 % of employees are permanently employed, while 30 % of
the workforce is temporarily employed by a temping agency. This fact reflects the low
cost role of the site within Pharma Inc.’s production network.
Planned improvements to the site’s manufacturing strategy primarily focus on increasing
flexibility and cost reductions. The site aims to reduce cycle, setup and cleaning times to
increase flexibility in responding changes in demand. In addition, the site intends to
increase flexibility to respond to the market’s need for a broader product mix and shorter
product lifecycles.
In terms of cost reduction, the site focuses on increasing employee productivity, asset
utilisation and capital investment productivity. A reduction in stock is also planned as part
of the manufacturing strategy.

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In terms of quality, the site focuses on increasing supplier quality performance. In addition,
the site aims to reduce variance in its processes through SPC and aims to reduce scrap
rates. The focus of these elements supports the goal of reducing lead times and increasing
the on-time delivery rate.
The following section analyses the site’s quality system using the St.Gallen system
approach, discussing the individual elements of the St.Gallen quality system model in its
site-specific application. The discussion is based on the case study database, which
consists of quantitative and qualitative data collected during the iterative research process
for this thesis.

5.2.5.2 Application of the Quality System Model

5.2.5.2.1 QUALITY ENABLER
The archival record of Pharma Inc.’s Eastern European production site shows an
aggregated enabler implementation level higher than the industry average across all
categories. The following sections reflect the implementation levels of the enabler
categories following the elements of the St.Gallen quality metric, as detailed in Chapter
4.2.4.1.
5.2.5.2.1.1 Preventive
In the preventive category of the St.Gallen quality metric, the Eastern European site shows
extremely high results over all sub-categories. Particularly in the sub-categories of
housekeeping, cross-functional product development, supplier quality management, visual
management and functional integration, the site shows high implementation levels
compared to the high performers in the underlying sample. The site has implemented
housekeeping checklists throughout the production area to consequently supervise the
status of the equipment and machines. In addition, the site has a very mature housekeeping
culture which involves every employee. All tools have their specific place and every
employee strives to keep the plant neat and clean. The site team uses standardised
procedures to transfer knowledge about product launches to other units and sites. In this
context, the site works closely with the manufacturing and R&D departments. The site
links its product and process development phases. As a result, the site did not face any
delays in product launches in recent years.
The supplier quality management implementation level is very high. Apart from the fact
that the site has no joint improvement programme with its suppliers, all elements are
strongly implemented. The site inspects 100 % of incoming goods based on suppliers’ past
quality performance. Quality in general is the site’s number one criterion for selecting
suppliers. The site ranks its suppliers using a supplier qualification and auditing
programme.

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The visual management implementation level of the Eastern European site is high
compared to the top ten percent of the data sample. Every production process has a
performance chart that reflects the annual performance objectives, current tact times and
current performance status. The charts are accessible for every employee.
For functional integration, the site’s scores are the highest in the entire data sample. The
site involves its employees in management discussions, hosting monthly open feedback
meetings that are translated into systematic training and educational actions. The site
invests continuously in employee training and qualification. The site has a formal
programme in place that rotates employees’ work stations to increase flexibility.
Preventive maintenance is an important task in the daily job of the operators that is seen
as a lever for improving quality. The site has a formal programme in place for maintaining
the machines and equipment.
The site processes are measured continuously, with a direct link to plant objectives. The
site has assigned process owners for managing, planning and improving their processes.
These elements lead to the high implementation levels in the preventive maintenance and
process management categories. In terms of planning adherence, the site’s implementation
level is above the top ten percent of the sample. This fact is reflected by the site’s
knowledge of root causes for variance in the production schedule. This knowledge is used
to eliminate influencing factors and level the production capacity throughout the entire
production process. A smoothly levelled production schedule positively influences
equipment and process stability.
5.2.5.2.1.2 Management Commitment
The implementation level of the management commitment and company culture sub-
element is slightly below that of the top ten percent of the data sample. In particular,
achieving high quality standards is not seen as a primary task of the QA and QC
department. Other than that, the implementation levels for this sub-category are relatively
high. Compared to the other two cases, the command and control leadership style is not as
strongly implemented in the Eastern European production site. In general, there is a high
degree of cooperation between on-site departments. Management empowers employees in
terms of CI and is consequently assimilated in improvement projects. An open
communication culture is used to sustain a proficient information flow throughout the site.
The site aims to avoid island thinking and prevents barriers between management layers
and different departments. This is supported by the monthly open feedback sessions held
on site. Identified problems are investigated to their sources and solved with a focus on
non-reoccurrence.

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5.2.5.2.1.3 Continuous Improvement

The implementation levels in the continuous improvement sub-category are all above the
level of the top ten percent of the data sample. In the customer involvement sub-element,
the site shows the highest possible degree of implementation. In comparison to the other
two cases, the fact that the site operates a joint customer improvement programme to
increase site performance is particularly special.
In addition, the site conducts surveys to identify customer requirements and the degree of
customer satisfaction. This close contact with customers follows the site philosophy of
ensuring on-time delivery.
5.2.5.2.2 MANAGEMENT SYSTEM PERFORMANCE
Management system performance is determined by evaluating the performance scores
consolidated in the archival record of the Eastern European production site. The
performance scores are evaluated according to the sub-elements of the St.Gallen quality
metric, detailed in chapter 4.2.4.2.
The management system performance scores of the Central European production site
reflect the positive impression of the enabler implementation levels detailed in the
previous section. The site achieves a representative quantity and quality of suggestions
from employees that reflects the high degree of employee involvement and management
commitment at the site. The cross-functionality and open feedback culture is an additional
indicator of the strong result in the suggestions category.
The high number of training days reflects the high degree of managerial investment in the
workforce of the production site. This fact is further supported by the very high level of
qualification of the employees on site. 98 % of the workers have work-related education.
The high investment in the employees is echoed by the very low absence and turnover rate
among the site’s workforce. In addition, the safety level is very high.
These factors reflect the positive attitude of the employees on site, who are continuously
involved and engaged by the management. All management system indicators compete
with the top ten percent performers in the data sample. The cultural aspects of the site
reflect a very high degree of quality-related implementation levels, management
commitment, employee involvement and people-related performance indicators.
5.2.5.2.3 QUALITY EFFECTIVENESS
The overall quality effectiveness score, which is calculated using the St.Gallen quality
metric from Chapter 4.2, shows an average result compared to the industry sample. The
following chapters examine the individual performance scores for the sub-categories in
the St.Gallen quality effectiveness metric.

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5.2.5.2.3.1 Supplier Reliability

The Eastern European production site’s supplier reliability score is below the industry
average. In particular, the supplier complaint rate is high compared to the rest of the
sample, and is higher than the score of the lowest ten percent of the data sample. The
service level supplier score is average.
These results indicate the concerted effort in the supplier quality management category to
tackle the challenges on the supply side of the production site. The planned improvements
for the manufacturing strategy mainly deal with increasing supplier quality performance.
These facts support the systems-based analysis of the enabler, strategy and performance
figures and confirms their interrelation.
5.2.5.2.3.2 Production Stability
The site’s aggregated production stability score is average result compared to the rest of
the sample. The OEE of the formulation operations is above the level of the top ten percent
of the sample, while the OEE of the packaging operations falls at the lower end of the
industry sample.
The unplanned maintenance proportion is extremely high in formulation operations and
even higher for packaging as reflected by the score in the lowest ten percent of the data
sample. This implies that the implementation levels and planning of preventive
maintenance tasks is not producing the desired outcome. However, this equipment
instability is not affecting the right first time figure, which is above the high performers in
the data sample.
Quality-related stability indicators are average. The rejected batches and deviation per
batch indicators reflect a higher result than the top ten performers in the industry sample.
The scrap rate and deviation closure time represent an average performance with
reasonable figures.
The production stability sub-category highlights the site’s status as a not-fully stabilised
production environment. However, the site has set the right priorities to increase the
quality of the incoming goods and equipment stability to ensure the stability of its
processes.
5.2.5.2.3.3 Delivery Quality
The delivery quality sub-category displays a relatively poor result which falls below the
industry average. Forecast accuracy and service level delivery are particularly low
compared to the rest of the sample. Both performance indicators show results that fall
below the lowest ten percent of the data sample. The production schedule indicator is
average, which reflects the site’s efforts in adhering to planning. The site’s knowledge of
the root cause of variance in the production schedule supports this result.

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The weakness in forecast accuracy and service level delivery are addressed by the
activities planned to improve the site’s manufacturing strategy. The site is pursuing actions
to increase its service level as part of the planned key activities in the site’s future.
5.2.5.2.3.4 Customer Quality
Even though the internal quality system of the Eastern European production site is not 100
% stable the site shows a perfect value for customer quality. The site’s customer complaint
rate is 0.0 %.
This fact is also reflected in the implementation level of the customer involvement
category. The site displays the highest possible implementation levels across all
categories, strongly integrating the customer into the internal improvement processes.
Additionally, the site conducts customer requirement and satisfaction surveys to further
improve customer quality levels. In comparison to Cases A and B, the Eastern European
site scores highest in the customer quality category.
5.2.5.2.4 QUALITY EFFICIENCY
The quality efficiency sub-category results for Pharma Inc.’s Eastern European production
site are reflected in the maintenance cost per overall cost and the cost of preventive
maintenance average results.
In quality cost per overall cost, the site follows its strategic position within Pharma Inc.’s
production network, with an extremely low quality cost per overall cost ratio of 3 %. This
value is way below the level of the top ten percent of the data sample and reflects the low
cost role of the production facility.
The maintenance costs are in the upper level of the sample and reflect the site’s high
unplanned maintenance figures. In addition, the average score in the preventive
maintenance category echoes the strong efforts in the area of preventive maintenance to
ensure equipment stability. These facts show the potential to improve the efficient use of
maintenance resources and for the Eastern European production site to fulfil its role as a
low cost site.
5.2.5.2.5 COMPLIANCE METRIC
The compliance metric discussion uses Pharma Inc.’s internal tracking system. Pharma
Inc.’s compliance metric is correlated with the quality score, calculated as the average of
the quality effectiveness and efficiency figures from the University of St.Gallen quality
metric.
In Pharma Inc.’s compliance assessment, the Eastern European production site shows
three noteworthy factors that warrant further investigation: overdue operational CAPAs,
overdue deviations and overdue period reviews of SOPs. In general, Pharma Inc.’s
compliance assessment shows no critical area.

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The correlation between Pharma Inc.’s internal assessment compliance score and the
system-based assessment based on the St.Gallen quality metric reflect the result of the case
study analysis. As described in the previous section, the site shows the best result for
customer quality, which means the site can handle its quality operations at a high level and
avoid failures that would affect external stakeholders. This is reflected in the site’s high
compliance score in Pharma Inc.’s internal compliance evaluation. The Eastern European
production site’s compliance score is one of the highest results in Pharma Inc.’s internal
network comparison. This is explained by appropriate priorities and a meaningful focus
on customer needs. Customer orientation is the key to the site’s success in terms of quality
improvements. The St.Gallen quality score shows an average result for the production site,
as it does not have all its equipment and processes fully stabilised. However, the score
implies that the site has set the right priorities and is improving in the right way.
Fig. 61 provides an overview of the correlation between the quality effectiveness and
efficiency scores based on the St.Gallen quality metric and the compliance score from
Pharma Inc.

Fig. 61 Overall results of the quality evaluation of the St.Gallen quality effectiveness and
efficiency scores and Pharma Inc.’s compliance metric – Site C

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5.2.5.3 Implications
The case study reflects the power of the St.Gallen system-based approach to align potential
improvement areas with the respective priorities defined by the site management team.
Even though the analysed production site shows good results in Pharma Inc.’s internal
compliance assessment, the St.Gallen quality metric helps identify improvement areas
using a systems approach. The site’s OPEX score supports this statement.
The Eastern European production site shows an average OPEX performance level
compared to industry peers in the specific production environment. The results show a
mature level of implementation scores that are currently not reflected throughout the
performance indicators assessed in the benchmarking study for quality and OPEX.
The St.Gallen quality benchmarking evaluation investigates the impact of enabler
implementations on current performance figures. Even if the implementation efforts show
a time delay, the site can analyse the impact of the planned initiatives to track the
improvements on a performance basis.
Therefore, the case study supports the research statement that quality-related resources
play a central role as a competitive advantage with a positive impact on the OPEX
performance level of a pharmaceutical production site.
The system-based evaluation allows the investigation of areas of improvement and helps
make the system’s weaknesses transparent. In addition, the system analysis supports the
ability to track improvement potentials of specific initiatives using a performance-based
approach.
The St.Gallen quality metric evaluation helps the Eastern European production site to
further define levers to consequently increase equipment and process stability to ensure
high quality standards. The analysis allows an in-depth investigation beyond compliance
figures that will help the site further understand correlating elements of different areas
which affect quality and excellence. The case study further supports the research goal of
analysing quality systems of pharmaceutical production sites using a systems approach.

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6 Cross-Case Analysis and Implications

6.1 Cross-Case Comparison

The cross-case comparison analyses the commonalities and differences of the three case
studies according to the St.Gallen quality system model and the St.Gallen quality metric
detailed in Chapters 3.2, 4.2 and 5.2. This chapter discusses every element of the model
individually and highlights the main findings of the case studies. In addition, the chapter
validates the case study findings compared to the case study results for the individual
quality metrics scores in relation to the OPEX performance score and the quality metrics
score in relation to the compliance score of the respective production sites (Yin, 1981;
Yin, 2014).
Chapter 6.2 summarises the implications of the cross case analysis and combines the
results to provide a general descriptive quality system model for the pharmaceutical
industry. The section concludes the overall findings and evaluates the impact of the cross-
case analysis on the research results.

6.1.1 Application of the Quality System Model

6.1.1.1 Quality Enabler

Case A:
The quality enabler score for the North American production site is below the industry
average. In particular, the implementation levels in preventive maintenance, visual
management, planning adherence, management commitment and continuous
improvement categories are low compared to the underlying sample. The employees at the
North American production site are not consequently striving for continuous improvement
and suggestion programmes are only partly driven by shop floor employees. The site does
not involving its customers to increase delivery performance or validating customer
satisfaction to improve overall performance.
Case B:
The quality enabler score of the Central European production site is above the industry
average. In particular, the preventive maintenance, process management, cross-functional
product development and functional integration levels are high compared to the rest of the
sample. The management of the site is highly committed and involved in improvement
projects. The employees on site strive for continuous improvement every day and are
cross-functionally involved in improvement projects. Employees have the authority to
drive improvement projects by themselves. In addition, the site involves its customers to
increase delivery performance.

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Case C:
The quality enabler score of the Eastern European production site is above the industry
average for all categories. In particular, the housekeeping, cross-functional product
development, supplier quality management, visual management and functional integration
scores are above the industry average. The site has an open communication culture with a
highly committed management that is consequently involved in improvement projects. In
addition, the site runs a joint customer improvement programme to increase the site’s
performance.
Summary:
The enabler section lays the foundation for a site to structure quality-related initiatives
with necessary priorities to achieve objectives and overall goals. Human resources are the
most important element, and must be engaged consequently by the top management.
Management supports the success of quality-related topics not only through its
commitment, but also by being involved in quality-related improvement activities. The
integration of customers in the improvement process has been noted by Seghezzi et al.
(2013) as key to company success. In addition, they highlight that highly committed
leaders and employees are the key to success in every company (Deming, 1982;
Feigenbaum, 1999; Seghezzi et al., 2013).
These facts are reflected in the enabler implementation levels of the three production sites,
which vary significantly for the given theoretical elements. Consequently, the quality
enabler category in the quality system model lays the foundation for a successful quality
management system at a pharmaceutical production site and is in line with the resource-
based view. This result confirms the structure of the quality management system model,
which places the quality enabler category at the base of the St.Gallen quality management
system model pyramid. Fig. 62 shows the St.Gallen quality management system model,
highlighting the quality enabler category.

Fig. 62: Quality management system model – quality enabler

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6.1.1.2 Management System Performance

Case A:
The employees at the North American production site have a high level of qualification
and a high number of training days per year. This is reflected in the high number of
suggestions per employee. However, site management does not track the quality of these
suggestions and is not able to quantify them. In addition, the site shows a high employee
turnover rate and absence rate. These facts are in line with the enabler implementation
levels, which show that employees’ willingness to improve is not supported by top
management.
Case B:
The number of suggestions from employees at the Central European production site is
moderate. However, the site achieves an impressive quality of suggestion despite this
relatively low number. Savings are well above the industry average. The site management
invests in its workforce, with a high number of training days dedicated to the needs of
every individual employee. These facts and the enabler implementation levels are reflected
in the site’s very low employee turnover rate.
Case C:
The Eastern European production site shows relatively high results in the management
system performance category. The employees generally have a high level of qualification
and are constantly trained in relation to specific requirements. In addition, the site shows
a high quantity and quality of suggestion results, which echoes the high qualification and
open cross-functional culture on site. Accordingly, the site shows a low employee turnover
and absence rate. The results of the category are in line with the enabler implementation
level of the Eastern European production site.
Summary:
All three case results for the management system performance category are in line with
the enabler implementation levels at the production sites. The lower the implementation
levels, the lower the scores in the management system performance category. The category
specifically addresses the investment and use of available resources on site. The higher the
investment and integration of the resources, the higher the competitive advantages and the
lower the danger of losing non-substitutable resources. This is in line with the resource-
based view and is well reflected by combining the enabler and management system
performance categories. Seghezzi et al. (2014) discuss this fact using the excellence
models from Malcolm Baldrige and EFQM, which both include leadership, workforce,
people and resources as key elements to achieve goals and desired results (EFQM, 2013;
NIST, 2006; Seghezzi et al., 2013).

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The measures in the management system performance category reflect the engagement
score for available resources at a pharmaceutical production site. The measures help
evaluate the detailed implementation levels related to the engagement of a site’s workforce
to derive general conclusions from the analysis. This fact proves the element builds upon
the enabler category as the second building block in the St.Gallen quality management
system model pyramid. Fig. 63 shows management system performance as part of the
St.Gallen quality management system model.

Fig. 63: Quality management system model – management system performance

6.1.1.3 Quality Effectiveness

Case A:
The quality effectiveness score of the North American production site lies at the lower end
of the industry sample. The data is incomplete which leads to imperfect data evaluation,
especially for the supplier reliability element. In the production stability category, the site
shows low performance across all categories, which reflects its poor equipment stability.
This leads to low scores in quality-related indicators, indicating poor process stability.
However, the site shows moderate results in the delivery and customer quality elements.
The KPIs echo the scores for the enabler and management system performance categories,
showing inconsistencies in the overall stability of the production site.
Case B:
The Central European production site shows results above the industry average across all
categories. Particularly in supplier reliability and production stability, the site achieves
high scores for all categories. The site’s stability-related indicators represent reliable
equipment and lead to strong results in the quality-related measures. These facts show the
impact of high site implementation levels for most stability-related elements and the highly
engaged, involved and supported employees. The delivery and customer quality scores are
average, but are subject to improvement in the site’s strategic improvement plan.

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The results for the quality effectiveness element are in line with the previously detailed
enabler implementation levels and the management system performance results.
Case C:
The quality effectiveness score for the Eastern European production site is average
compared to the industry sample. The supplier reliability and production stability scores
indicate an average performance level. Specifically, equipment stability is below the
industry average. This is echoed by the average quality level, which reflects a not fully
stabilised production environment. The delivery quality is poor, which is to improvement
in the site’s manufacturing strategy. However, the site shows a very high customer quality
score. As in the other cases, the quality effectiveness score of the Eastern European
production site is in line with the previously detailed enabler and management system
performance results and reflects the impression of a not fully stabilised production
environment.
Summary:
The results for the quality effectiveness category in all three cases support the previously
detailed scores in the enabler and management system performance categories. The results
show the importance of equipment and process stability, which affect the sites’ quality-
related indicators. Stable equipment is a very important resource which must be
proactively maintained to ensure stable processes and high quality products. Stable
equipment requires capable employees who can ensure equipment stability. This fact
shows the importance of site resources as a competitive advantage to achieve high
performance, which is in line with the resource-based view. Friedli et al. (2013) mention
that stable processes reliant on stable equipment also influence supplier quality
performance such as quality performance and inventory performance (Friedli et al., 2013).
The results of the cross-case analysis support this statement and clearly show the impact
of stability on the overall quality effectiveness score, including supplier, production,
delivery and customer quality. Fig. 64 shows the quality effectiveness score as the third
element of the St.Gallen quality management system model, translating the enabler
implementation and management system performance levels into stability-related KPI
scores.

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Fig. 64: Quality management system model – quality effectiveness

6.1.1.4 Quality Efficiency

Case A:
In line with the previous elements, the North American production site was unable to
provide all the requested data. The site could not provide numbers for their preventive
maintenance costs. In addition, the site outsources most of its preventive maintenance
tasks, as reflected in the low cost of maintenance. Quality costs are considerably above
those for the industry sample of sterile manufacturers. These results are in line with the
impression from the previous sections that the site does not have its equipment and
processes fully stabilised and under control. The quality efficiency score is a good
indicator for investigating areas for improvement.
Case B:
In relation to the location of the Central European production site, the quality efficiency
score shows very good results for quality and maintenance costs in relation to overall costs.
The cost of preventive maintenance is high compared to the rest of the sample. This is in
line with the site’s concerted efforts in preventive maintenance activities. As with Case A,
this results is an indicator to further investigate preventive maintenance activities to
evaluate the benefits of such high investment. However, the quality effectiveness score
reflects the site’s high stability and implementation scores and supports the previous
results.
Case C:
The Eastern European production site shows average results in the cost of preventive
maintenance category, low costs in the quality cost category and high costs in the
maintenance cost category. The low quality costs reflect the sites role in Pharma Inc.’s
network. However, the maintenance costs are relatively high, which reflects the previous
results of not having a fully stabilised production environment in place.

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The partly unstable equipment leads to high costs in the maintenance category.
Summary:
In general, the quality efficiency category is a good measure to show potential for
improvement across all three sites. Since the previously detailed elements are indicators
of a site’s production stability, the quality efficiency score helps assess these facts against
resource consumption of the quality and maintenance departments. The category deals
with the efficient use of available resources. In addition, the category helps identify
overestimations in the area of preventive maintenance which are reflected in high costs.
As Kaynak (1997) notes, cost figures are one of the most important elements for a
comprehensive measurement system (Kaynak, 1997).
This fact is supported by the results of the cross-case comparison. The quality efficiency
category supports the results from the previous sections and indicates areas for
improvement. Fig. 65 reflects the integration of quality efficiency into the quality
management system model pyramid.

Fig. 65: Quality management system model – quality efficiency

6.1.1.5 Compliance Metric

Case A:
The North American production site shows a relatively poor compliance level compared
to the other 13 Pharma Inc.’s sites participating in this study. This result is in line with the
results of the St.Gallen benchmarking study, the case study and the cross-case analysis.
Case B:
The Central European production site shows the highest compliance score of the
investigated Pharma Inc.’s production sites. This result is reflected by the site’s relatively
high overall score compared to the industry sample. In addition, the result is supported by
the case study evaluation and the cross-case analysis.

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Case C:
The Eastern European production site shows a high score for the compliance metric, which
is in line with the results of the benchmarking study and the qualitative case study results.
The evaluation identified areas for improvement to help the site further improve their
overall results.
Summary:
The compliance scores for the three cases reflect the results of the University of St.Gallen
quality system model analysis. The evaluation contributes to the sites’ decision making
processes for planned improvements and shows the impact of individual elements on
quality-related measures. The correlation between the quality score and the compliance
score supports these findings and validates the St.Gallen quality system approach. The
overall result of the correlation is shown in Fig. 66.

Fig. 66: Overall results for compliance and quality score correlation

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6.1.2 Comparison Quality Metrics Score – Compliance Score

To further investigate the interrelation between the St.Gallen quality metric and Pharma
Inc.’s compliance metric, a further cross-analysis was performed. Combining the results
of the quality system analysis, calculated via the average score of the elements from the
quality enabler, management system performance, quality effectiveness and quality
efficiency categories, the case ranking is as follows:

1) Case B – Central European production site

2) Case C – Eastern European production site
3) Case A – North American production site

The Central European production site has the highest quality metric ranking, followed by
the Eastern European and North American production sites.
Calculating the overall compliance score as an average of the individual elements of
Pharma Inc.’s compliance metric produces the following overall result and site ranking:

4) Case B – Central European production site

5) Case C – Eastern European production site
6) Case A – North American production site

The site with the highest compliance score is the Central European site, followed by the
Eastern European and North American production sites. This fact shows the impact of the
St.Gallen quality system analysis and shows the strength of the St.Gallen quality metric.
The evaluation supports the conclusion that the St.Gallen quality management system can
help a pharmaceutical production site evaluate its current performance to identify areas for
improvement. The fact that the results of the St.Gallen evaluation are in line with Pharma
Inc.’s compliance scores validates the applicability of the St.Gallen quality system model
and metric for sites dealing with different technologies, sizes and site roles within the
production network of a pharmaceutical company.
Fig. 67 illustrates the results of the evaluation and describes the impact of the system-
based quality assessment on the compliance scores of the three sites.

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CROSS-CASE ANALYSIS AND IMPLICATIONS

Fig. 67: Cross-case evaluation of quality metrics and compliance scores

6.1.3 Comparison Quality Metrics Score – OPEX Performance

The answer to the main research question is further supported via a cross-case comparison
of the results of the aggregated quality metrics score as an average of the individual
elements of the St.Gallen quality system and the OPEX performance score, as described
in Chapter 4.2.5. The results show that the higher a site’s quality metric score, the higher
the overall OPEX performance score. This result is in line with the previously conducted
statistical analysis showing the impact of the quality metric on the OPEX performance. In
addition, the three detailed investigations reflect the impression of the overall quality
benchmarking evaluation, showing the positive impact of the quality elements on OPEX
performance. Specifically, the evaluation reflects the results of the individual qualitative
case study evaluation and the current status of three sites. The cross-case comparison of
the quality metrics is in line with the cross-case evaluation of the OPEX performance
assessment. Based on these results, the cross-case comparison further supports the answer
to the main research question showing, the impact of quality on the OPEX performance of
the three pharmaceutical production sites.

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 CROSS-CASE ANALYSIS AND IMPLICATIONS

Fig. 68 shows the results of the evaluation and implies the impact of the quality metric
results on the OPEX performance.

Fig. 68: Cross-case evaluation of quality metrics score and OPEX performance

6.2 Management Implications from the Cross-Case Analysis

The core implications from the cross-case comparison are in line with the previous
quantitative results of the analysis conducted in Chapter 4. In addition, the evaluation
supports the theoretical constructs evaluated in the thesis and supports the research
process. The cross-case analysis underlines the answer to the main research question in a
real context and proves the positive impact of quality on the excellence level of
pharmaceutical production sites.
The main implications for management are summarised as follows:
Management commitment is one of the most important elements to engage a
pharmaceutical production site’s available human resources. Management commitment is
addressed in this case as management engagement, support and integrating every
employee to achieve superior performance. In addition to human resources, the effective
and efficient use of equipment is central to high overall system performance. Stable
equipment and stable processes are the prerequisite resources for achieving a competitive
advantage and high performance. Unstable production leads to unsustainable, lagging
performance across all areas of a production site.

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CROSS-CASE ANALYSIS AND IMPLICATIONS

The analysis proved the impact of quality on excellence and highlights the importance of
a systemic approach related to overall site performance. The core implication for
management is to ensure a balanced approach which considers all relevant elements and
system resources. Improvement strategies must be aligned with systems thinking to
achieve optimal positive impact.
The cross-case analysis proved that the St.Gallen quality system model and quality metric
is valid for production sites with different technologies, sizes and locations. However, the
context of the site has to be considered when evaluating the individual results of the study.
An in-depth analysis of the results will help management set the right priorities and
understand the interrelation between the individual elements of quality and excellence to
identify the right levers for improvement. In addition, the analysis implies that a systems-
based approach to quality is in line with state-of-the-art compliance assessments by the
pharmaceutical companies themselves.
Based on these factors, the St.Gallen quality system model is seen as a management tool
to identify and challenge the current performance status and to identify future priorities to
ensure high system stability and performance. In addition, the St.Gallen quality system
model combines quality and excellence as integrated using a system approach.
Fig. 69 shows the overall descriptive model for structuring quality and excellence in a
pharmaceutical production site.

Fig. 69: St.Gallen Quality System model – Overcoming the divide between quality and
excellence

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 CONCLUSION AND OUTLOOK

7 Conclusion and Outlook

7.1 Summary of Results

The theoretical gaps filled by this thesis, along with its practical relevance, contributes to
current discussions about quality metrics in the pharmaceutical industry. The goal was to
show the impact of quality on the OPEX performance of pharmaceutical production sites,
based on companies’ resources. Therefore, the following research question was posed:

MRQ: What is the impact of quality on the OPEX performance within the
pharmaceutical industry?

The investigation began with an in-depth literature review that was enhanced by exchanges
with various scholars and practitioners to further specify the research topic. Having
evaluated the existing literature on quality systems and the design phase of the St.Gallen
quality system model and its underlying quality metric, the impact of quality on excellence
was quantitatively analysed using statistical methods.
Path analysis showed the quantifiable impact of quality on OPEX performance based on
identified quality metrics, using real data from 114 pharmaceutical production sites from
all over the world. The St.Gallen quality system model and its metrics was able to explain
62.6 % of the overall variance in the St.Gallen OPEX performance, answering the main
research question of the thesis.
In a further quantitative evaluation, a tool was developed to benchmark the elements of
the St.Gallen quality system model among the 316 datasets of the St.Gallen OPEX
database. The evaluation compared individual site values against the industry average and
the high and low performers in the sample. This evaluation further corroborated the
statistical analysis and showed a positive correlation between the individual quality system
elements and the OPEX performance, further supporting the answer to the research
question.
To verify these research findings, an assessment was conducted in a real industry context,
applying the quality system model to 14 production sites in a pharmaceutical company.
To show the impact and results of the study, three sites were selected from different
regions, site roles, production technologies and sizes to evaluate the research findings. The
individual case analysis and cross-case analysis were in line with the previously discussed
results. Clear interdependencies were shown between the individual elements of the
St.Gallen quality metric and the positive impact of the quality metric on the company’s
compliance score and the sites’ overall OPEX score.

155
CONCLUSION AND OUTLOOK

The quality system model and quality metric is applicable to all the pharmaceutical
company’s sites, and the outcomes are supported by their own internal assessments.
Throughout the research process, the importance of quality-related resources as
competitive advantage in achieving high overall performance was shown.
Based on the results of the individual research methods, the St.Gallen quality system
model and the underlying quality metric are tools for determining the current status of a
pharmaceutical production site in terms of quality and excellence using a systemic
approach. In addition, the model helps to identify areas for improvement to set appropriate
priorities to achieve excellent performance in the pharmaceutical industry.
The evaluation of the quality metrics proves the positive interrelation between quality and
compliance and confirms the approach of focusing on system-based indicators to validate
the quality system at pharmaceutical production sites. The thesis supports the position that
compliance needs to be discussed in combination with quality and excellence. The
example of the case study analysis emphasises this statement graphically and shows the
positive relationship between quality and compliance in a real-world context.
The statistical analysis reflects the impact of quality and excellence and implies that
quality and OPEX need to be managed in an integrated way to optimise the potentials and
benefits from both approaches. Quality and excellence in general follow the same goal of
ensuring excellent and robust processes that are the basis for high product quality. The
divide between quality and excellence, especially when it comes to management, must be
avoided to achieve a high overall performance. This fact is proved by the quantitative and
qualitative evaluations conduced in this thesis. The integrated management of quality and
excellence pushes a company to the next level of pharmaceutical production.
The research and results conducted in this thesis are in line with the findings of a paper
from Ferdows and De Meyer (1990), in which the scholars introduced the “Sand Cone
Model” for lasting improvements in manufacturing performance. The model uses quality
as the basis for companies’ dependability, speed and cost efficiency. The model was built
based on the assumption that manufacturers with better quality are more dependable and
more agile and flexible in relation to market changes. As a result, those manufacturers
achieve overall lower costs. Ferdows and De Meyer (1990) claim that quality
improvements may lead to cost reduction but cost reductions are never echoed in quality
improvements. The scholars emphasise quality performance as a precondition for all
lasting improvements. The sand cone model consists of four elements: quality,
dependability, speed and cost efficiency. A company should start by improving quality
performance, followed by dependability and speed. The speed should only be improved
once the foundation of quality and dependability are stable. All elements should be
expanded continuously and the focus on quality and dependability should always be
central to ensure overall stability.

156
 CONCLUSION AND OUTLOOK

Fig. 70 shows the sand cone model, reflecting quality as the basis for all improvements
(Ferdows and Meyer, 1990).

Fig. 70: The sand cone model (Ferdows and Meyer, 1990)
Those findings are in line with the results of this thesis, showing the impact of quality on
OPEX performance of pharmaceutical production sites. This thesis quantifies the fact that
quality is the foundation for OPEX and the basis for further improvements. High quality
performance allows a pharmaceutical production site to continuously improve their
processes to increase overall efficiency.

7.2 Contribution to Theory

This research contributes to the literature of quality management in the pharmaceutical
industry, specifically in the area of quality systems and quality metrics. The research
focuses on the integrated approach of quality and excellence and combines these elements
using a systemic approach.
Quality and excellence are mainly unconnected in the pharmaceutical quality literature.
No paper currently quantifies the impact of quality-related indicators on the OPEX
performance of pharmaceutical production sites. The approach in this thesis shows the
positive impact of quality on excellence, using quality-related resources that have an
overall impact on the internal stability of pharmaceutical production sites. The research
helps overcoming the divide between quality and excellence in the pharmaceutical
industry.
Based on the systems approach, the thesis contributes to the existing literature stream with
a substantiated systems-based quality measurement system for pharmaceutical production
sites.

157
CONCLUSION AND OUTLOOK

7.3 Contribution to Practice

Ulrich (1984) emphasises that business administration research should strive to solve real
industry challenges (Ulrich, 1984).
The key motivation of this research was spurred by problems in practice. In particular,
rising regulatory pressures and future challenges for the pharmaceutical industry led to the
investigation of the interdependencies of quality and excellence.
The St.Gallen quality system model and the quality metric are a way to investigate the
current status of a pharmaceutical production site in terms of quality and excellence. This
research shows the impact of individual resources on overall system performance and
structures the internal elements according to a detailed quality system. The research guides
the industry with its underlying assessment to think systemically to identify the right
improvement areas and to support managers in their decision making processes. The
research provides the industry with a tool to identify patterns and the relative position of
a production site in an industry comparison. The research provides guidance on
influencing elements and quantifies the impact of specific categories. The thesis
contributes to the discussions related to the FDA draft guidance about the proposed set of
quality metrics and challenges any suggestions issued by the main stakeholder of
pharmaceutical associations and organisations. In general, the thesis supports the FDA in
their decision to force the industry to implement a risk-based quality metric assessment
and provides ideas for designing a more general systems-based approach to identify the
current status and potentials for quality improvements.
The research outcomes support managers in their decisions to involve multiple
stakeholders to holistically improve production and process stability throughout the end-
to-end processes at a pharmaceutical production site.
Finally, the research provides a descriptive model for managers and research fellows that
structures the quality system of a pharmaceutical manufacturing plant using a systemic
approach combining quality and excellence.

7.4 Limitations and Further Research

The research project has some risks and limitations that warrant further research. These
limitations are discussed in the following.
The quality metrics have not been proved and tested in a longitudinal study
The thesis does not observe any long term studies over several years. It is not possible to
test the long-term applicability of the tool within the industry based on the underlying
dataset. Further research needs to be done to establish a real-time quality surveying tool
that can be implemented within companies and connected to other IT systems.

158
 CONCLUSION AND OUTLOOK

This tool might show live and online changes in the quality system and trend analysis
could be conducted. This would allow potential quality issues to be solved before they
occur.
Weighting of quality-related indicators
The quality metric developed for this thesis includes no weighting system. Currently all
elements are weighted equally to evaluate and validate the first piece of research in this
area. Further research needs to investigate the impact of the individual elements on quality
to further develop a weighted quality metric for the pharmaceutical industry. A weighting
system will be necessary to further align the evaluations with the reality of pharmaceutical
production sites.
Research based on surveys and self-assessments
Research based on surveys and self-assessments always depends on the quality of the data.
This is highly influenced by the people filling out the questionnaires, no matter whether
this is numerical data or self-assessments of the implementation level of a specific
initiative. In addition, the hierarchical level of the person taking the survey can influence
the result. Finally, the completeness of the data can impact the results of the study.
However, this risk can be mitigated by choosing the right people to fill out the
questionnaire. Furthermore, the design and method of analysing the questionnaire can
detect fake data. The data for this thesis was reviewed and tested for integrity to ensure
the highest possible data quality.
The quality management model only consists of internal elements.
The resulting quality management model consists exclusively of internal elements. This is
due to the resource-based view, which focuses on using internal resources to achieve a
competitive advantage.
Summary
Based on these detailed ideas, further research should investigate an appropriate weighting
system of the individual elements of the St.Gallen quality metric to further specify the
outcomes of the research. In addition, a trend analysis of the data in a long-term study
should be conducted to evaluate the metrics’ ability to track potential quality-related
changes in system performance. The model has the potential to be enlarged to tackle
external, supply chain related indicators to expand the system’s boundaries. Furthermore,
the questionnaire, especially the self-assessment, should be further developed to ensure
the highest possible data consistency.

159
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9 Appendix

9.1 St.Gallen OPEX Benchmarking Questionnaire13

13 The St.Gallen OPEX Benchmarking Questionnaire is published in Friedli et al. (2006, 2010, 2013)

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Curriculum Vitae

Name: Christian Simon Mänder

Date of birth: 26.01.1988
Place of birth: Tuttlingen (Germany)
Nationality: German

Practical Experience:
Since 2015 Schuh & Co. Komplexitätsmanagement AG, St.Gallen (Switzerland)
Senior Consultant: Healthcare Practice

2013-2015 University of St.Gallen, St.Gallen (Switzerland)

Institute of Technology Management, Division Production Mgmt.
Group Coordinator OPEX & Research Associate

2012 Seuffer GmbH & Co. KG, Calw (Germany)

Thesis: Greenfield Layout Planning Production Facility

2011 Mercedes-Benz Malaysia Sdn. Bhd., Kuantan (Malaysia)

Internship: Quality Assurance Department

2008 SHW Automotive, Neuhausen (Germany)

Internship: QA/QC Department

2007 SHW Automotive, Neuhausen (Germany)

Internship: QA/QC Department
Education:
2013-2016 University of St.Gallen, St.Gallen (Switzerland)
Doctoral Studies in Business Innovation
2007-2012 Karlsruhe Institute of Technology, Karlsruhe (Germany)
Mechanical Engineering (Production Technique)
1998-2007 Otto Hahn Gymnasium, Tuttlingen (Germany)
Abitur (German A-level equivalent)

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