Operations and Supply Chain Management at PharmaS d.o.o. - An Interview by Neva Vidović

As part of the Honors Program at RIT Croatia, student Neva Vidović conducted an interview in December 2024 with Mr. Gordan Badurina, COO of PharmaS d.o.o., and Marin Keser, Supply Chain Manager at PharmaS.

PharmaS is a Croatian manufacturer and distributor of pharmaceutical products. In addition to high-quality pharmaceutical and prescription medicines, its product range also includes various consumer healthcare brands. The company operates three production facilities equipped with modern pharmaceutical technology, two in Croatia (Rakitje and Popovača) and one in Serbia (Zrenjanin) ensuring a steady supply of quality pharmaceutical products to numerous markets.

https://www.pharmas-group.com/en/

Organizational structure

Can you give us an overview of the operations management at The PharmaS Group?

The PharmaS Group’s operations management is structured to ensure optimal performance across all its functional areas, with a strong emphasis on quality, efficiency, and supply chain effectiveness. Below is an overview of our operations:

Operations Management Structure:
- Directly under the CEO, the Operations division is responsible for coordinating production, quality assurance, quality control and supply chain activities.
Key Divisions in Operations:
- Quality Assurance:
  - Includes Quality System management and Quality Control activities, with a specific focus on compliance and standards at the Popovača and Rakitje plants.
  - Supervised by a Qualified Person (QP) to ensure regulatory requirements are met.
- Production Plants:
  - Popovača Plant: Focuses on production and product development.
  - Rakitje Plant: Handles production and maintenance operations.
- Supply Chain Management:
  - Comprises Procurement, Demand Planning, Sales Operations Support, and Warehouse management in Popovača.
  - Aims to ensure smooth delivery of materials and finished products, as well as operational efficiency.
Organizational Structure:
- Please find the organigram below, which visually represents the structure of our operations management.

By maintaining a clear and well-defined operational structure, PharmaS ensures high-quality output, regulatory compliance, and timely delivery of products across its markets.

2. What are the main goals you’re working toward, and how do you track your progress in operations? What are the key performance indicators?

At PharmaS, our primary goals focus on delivering high-quality pharmaceutical and food supplement products that are accessible and affordable to a wide range of patients. We concentrate on continuously improving the efficiency of our manufacturing processes, innovating in the development of new products, and expanding our presence in domestic and international markets.

We track our progress through a set of key performance indicators (KPIs), including:

Production Efficiency: Measuring the number of units produced relative to planned targets.
On-Time Delivery Rate: Monitoring our ability to deliver products within agreed timelines.
Product Quality: Tracking the number of customer complaints and product recalls.
Operational Costs: Analyzing production costs to identify areas for savings.
Customer Satisfaction: Gathering feedback to enhance our products and services.

We regularly analyze these indicators to ensure we are on the right path toward achieving our strategic objectives.

3. What is an example of a process you improved and what impact did it have?

One significant improvement we are currently in development is the introduction of a Manufacturing Execution System (MES). This system is being implemented through various modules, each providing specific benefits:

Digitization and Machine Connectivity: We connected our machines to the system for real-time production monitoring, productivity analysis, and improved utilization.
Integration with ERP and Traceability: By integrating MES with our SAP ERP system, we can track individual work orders in real-time and implement production traceability, enhancing quality control and regulatory compliance.
Operator Login and Interfaces: Operators authenticate on machines using smart cards, facilitating work organization and employee recognition.
Digitalization of Machine Maintenance: We manage machine maintenance digitally, including alerts and analysis of maintenance activities, leading to better tracking of maintenance costs for each machine.
Production Planning: Integrated with ERP and operator interfaces, this module allows for precise and efficient production scheduling.
Energy Management: System monitors energy consumption per machine and production line, enabling accurate calculation of actual consumption per product and preventive measures against excessive energy use.
Paperless Production: We have fully digitized the production process by distributing work orders and instructions directly to machines via Panel PCs or tablets, reducing paper use and improving efficiency.

Impact of the MES Implementation:

Increased Efficiency: Real-time data collection and monitoring have streamlined our production processes, reducing downtime and increasing throughput.
Enhanced Traceability: Improved traceability ensures compliance with regulatory standards and facilitates proactive quality management.
Cost Savings: Optimized energy usage and maintenance schedules have led to significant cost reductions.
Employee Engagement: Operator interfaces have improved workforce management and increased employee engagement through recognition and accountability.
Environmental Benefits: Moving towards a paperless environment supports our sustainability goals and reduces our environmental footprint.

Risk management and current challenges

4. How do you handle supply chain disruptions, like shortages or global crises? How are you responding to the current global crisis of inflation or war in Ukraine?

To manage supply chain disruptions, we have implemented a supplier diversification strategy, ensuring alternative sources for key raw materials. We also maintain safety stocks of critical materials to minimize the impact of potential shortages.

In response to current global challenges like inflation and the war in Ukraine, we closely monitor market trends and collaborate with our finance and legal team on currency hedging and long-term contracts with suppliers to stabilize costs. We are also exploring local sourcing options to reduce dependence on imports from unstable regions.

5. How do you identify and manage risks in your operations?

We identify risks through a systematic risk management process that includes:

Regular Risk Assessments: Each department evaluates potential risks related to their activities.
Data Analysis: We use historical data to predict and prepare for future challenges.
Control Measures: We implement policies and procedures to mitigate identified risks.

We manage risks through continuous monitoring, adapting our processes, and educating employees on best practices and regulatory compliance.

The digital aspect of the processes

6. How are you bringing things like automation or AI into your operations?

Please see answer number 3.

7. What software do you use for scheduling and managing production?

We utilize SAP ERP for scheduling and managing production. This comprehensive system allows us to integrate and streamline all aspects of our operations, including:

Production Planning (SAP PP): Optimizes our production schedules and aligns them with material availability and demand forecasts.
Materials Management (SAP MM): Manages procurement and inventory, ensuring that raw materials and components are available when needed.
Quality Management (SAP QM): Supports our quality assurance processes, including compliance with regulatory standards.
Sales and Distribution (SAP SD): Coordinates sales orders with production and delivery schedules.

By using SAP ERP, we achieve greater visibility across the supply chain, improve data accuracy, and enhance decision-making capabilities

8. With so much sensitive data, how do you manage cybersecurity risks?

We have implemented a robust cybersecurity system that includes:

Data Encryption: All sensitive data is encrypted both in transit and at rest.
Multi-Factor Authentication: Access to systems requires multiple forms of identity verification.
Regular Security Audits: Conducting internal and external audits to identify and address vulnerabilities.
Employee Training: Regularly training staff on best practices in cybersecurity and raising awareness about phishing and other cyber threats.
Incident Response Plan: Developing and maintaining a comprehensive plan to quickly respond to and recover from cybersecurity incidents.

Supplier relationship management

9. How do you keep strong relationships with key suppliers? How do you diversify the location, quality, and lead time?

We maintain strong relationships through:

Partnership Approach: Building long-term relationships based on trust and shared goals.
Regular Communication: Keeping open channels for quick information exchange and collaboration.
Performance Evaluation: Regularly assessing suppliers based on quality, reliability, and delivery performance.

To diversify location, quality, and lead time:

Geographical Diversity: Collaborating with suppliers from different regions to reduce the risk of local disruptions.
Multiple Sourcing: Having multiple suppliers for key raw materials to ensure consistency in quality and supply.
Supplier Development Programs: Working with suppliers to improve their processes and capabilities, aligning them with our standards.

Production

10. How do you plan for production and make sure you’re meeting demand?

We use demand forecasting tools based on historical data, market analyses, and sales trends. Our production planning team collaborates closely with sales and marketing departments to adjust production plans in real-time. We hold regular monthly Sales and Operations Planning (S&OP) meetings, bringing together cross-functional teams to align on demand forecasts, inventory levels, and production schedules. This ensures that our production is flexible and responsive, allowing us to quickly scale up or down to meet changing demand.

Customer relationship management

11. How do you collect and process customer feedback, and how does that influence the decisions you make in operations?

We collect customer feedback through:

Customer Satisfaction Surveys: After purchase or use of our products.
Customer Service: Direct communication via phone or email.
Social Media and Online Reviews: Monitoring comments and ratings.

We analyze this data to identify areas for improvement. Feedback influences:

New Product Development: Aligning with customer needs and desires.
Improvement of Existing Products: Correcting deficiencies or adding new features.
Service Enhancement: Improving delivery processes or customer support.

Future outlook and current plans

12. Where does sustainability come into play in managing your supply chain? What are your main focuses when it comes to ESG?

Sustainability is integral to our supply chain management. We have implemented the ISO 14000 environmental management standards to systematically reduce our environmental impact. Our efforts include:

Environmentally Friendly Materials: Using recycled and biodegradable materials in our packaging.
Logistics Optimization: Reducing carbon emissions by optimizing transportation routes and consolidating shipments with our logistic partners.
Waste Reduction Programs: Implementing processes that minimize waste in production and promote recycling.

Our main focuses when it comes to ESG (Environmental, Social, and Governance) are:

Environmental Stewardship: Complying with ISO 14000 standards and continually seeking ways to reduce our environmental footprint.
Governance and Ethics: Maintaining transparency in our operations, adhering to ethical business practices, and ensuring compliance with all relevant regulations.

13. What are some trends in the industry that you think will shape the future of operations?

Digitalization and Automation: The increasing adoption of digital technologies is transforming operations. Automation of manufacturing processes, supply chain management, and administrative tasks is enhancing efficiency and reducing costs.
Artificial Intelligence and Machine Learning: AI is playing a significant role in predictive analytics, quality control, and personalized medicine. Machine learning algorithms help in demand forecasting, risk management, and optimizing production schedules.
Internet of Things (IoT): IoT devices are improving real-time monitoring and data collection across operations, leading to better decision-making and proactive maintenance.
Personalized Medicine: Advances in genomics and biotechnology are leading to customized treatments, requiring more flexible and responsive manufacturing processes.
Sustainability: A growing emphasis on environmentally friendly practices is influencing how companies manage their supply chains and production methods.
Regulatory Changes: Evolving regulations require companies to be agile and adaptable in compliance efforts.
Cybersecurity: As operations become more digital, protecting data and systems from cyber threats is increasingly critical.

Please identify and describe a current scheduling or inventory problem that you are facing.

We are currently facing a significant challenge with our supply chain due to the Red Sea Crisis. Transportation routes from India, where we source some of our critical raw materials, have been disrupted, leading to prolonged sea freight times from 30 to 60 days. This delay affects our inventory levels and production schedules, posing risks of stockouts and inability to meet customer demand. To address this issue, we are taking several measures:

Exploring Alternative Transportation Routes: Investigating the feasibility of air freight, despite potential cost implications.
Increasing Safety Stock Levels: Adjusting our inventory policies to hold larger quantities of the affected materials to buffer against the extended lead times.
Supplier Diversification: Identifying and qualifying additional suppliers from different regions to reduce dependency on a single source.
Enhanced Communication: Working closely with our suppliers in India to get timely updates and collaboratively find solutions to mitigate delays.
Adjusting Production Schedules: Revising our production planning to prioritize products that are less affected by the supply delays.

These actions aim to minimize the impact on our operations and maintain our commitment to delivering products to our customers on time.