SUPPLY AND MANUFACTURING
We have some 12,200 people at 25 manufacturing sites in 19 countries, dedicated to delivering a secure, high quality, cost-effective supply of our small molecule product range worldwide. Of these 12,200 people, around 1,100 are employed in active pharmaceutical ingredient supply and 10,500 in formulation and packaging. We operate a small number of sites for the manufacture of active ingredients in the UK, Sweden and France, complemented by efficient use of outsourcing. Our principal tablet and capsule formulation sites are in the UK, Sweden, Puerto Rico, France and the US, and we also have major formulation sites for the global supply of parenteral and/or inhalation products in Sweden, France, Italy and the UK. Packaging is undertaken at a large number of locations, both at our sites and at contractors’ facilities, which are located close to our marketing companies to ensure rapid and responsive product supply. Our biologics and vaccines business has some 600 people working at four principal commercial manufacturing and distribution facilities in the US and Europe.
Customer service
Providing first class customer service is core to supporting the continued growth of our business. Our supply chains are structured to be flexible and responsive to the changing needs in our local markets, and in 2007 we announced the establishment of regional offices to further optimise supply chains and support sales growth.
Supply capability
Process improvements, continual asset review and the effective use of external partners ensure the secure and effective supply of our products. As part of our overall risk management, we carefully consider the timing of investment to ensure that secure supply chains are in place for our products. We have a programme in place to provide appropriate supply capabilities for our new products, including an assessment of needs for new technologies.
In 2007, with the acquisition of MedImmune, Inc., we gained immediate capabilities in process development, manufacturing and distribution of biological products, including worldwide supply capabilities for monoclonal antibodies and influenza vaccines. MedImmune’s production capabilities are scalable and should enable us to manage the development of the much larger, combined, biologics and vaccines pipeline created as a result of the acquisition.
Capital expenditure on supply and manufacturing facilities totalled approximately $191 million in 2007 (2006 $201 million, 2005 $206 million) across a range of projects. Our global purchasing policies and processes, together with our integrated risk management process, are aimed at ensuring uninterrupted supply of raw materials and other key supplies, all of which are purchased from a range of suppliers. Our process systematically examines a range of risks to global supply, such as disasters that remove supply capability or the unavailability of key raw materials. It ensures that these risks are mitigated by the implementation of contingency plans, including the appropriate use of dual or multiple suppliers and maintenance of appropriate stock levels. Although the price of raw materials may fluctuate from time to time, our global purchasing policies seek to avoid such fluctuations becoming material to our business.
Cost efficiency
In 2007, we continued to focus on improvements to our supply system, which have demonstrated progressive benefits. These include reduced manufacturing lead times and lower stock levels, which have been achieved without compromise to high levels of customer service and quality. We are driving further improvements using principles that focus on what adds value for our customers and patients, whilst simultaneously eliminating waste. MedImmune also follows similar principles and continues to seek improvements in the production of both clinical drug supply and commercial products. The approach to process development affords cost efficiencies throughout the development cycle of a product candidate starting in discovery with support of the selection of molecules and cell lines, and continuing throughout a product’s commercial life cycle.
The improvements made to our supply system during the year are part of a wide-ranging cost and efficiency programme. This delivered significant benefits in 2007, and we are expecting further progress in 2008 and beyond. During 2007, as part of the continuous review of our manufacturing assets to make sure that they are being used in the most effective way, whilst preserving the flexibility we need to respond to fluctuations in demand, we announced the sale of facilities in Monts, France; Plankstadt, Germany; and in Indonesia and South Africa. We also announced our intention to close our packaging site in Canada. We will continue to make further adjustments to our manufacturing base to ensure optimum use of our production facilities. For example, in February 2007, we announced our intention to reduce our Operations workforce by 3,000 jobs over the next three years to address over-capacity in the supply chain. These reductions are the subject of a full consultation process with staff representatives to ensure that the process is fair and transparent.
Licence to operate
We are committed to delivering assured product quality that underpins both the safety and efficacy of our medicines. As part of this, the outcomes of routine internal inspections, as well as those by regulatory authorities, are rigorously reviewed and, if required, actions are taken to improve compliance consistently across the organisation. The results of all external inspections carried out during 2007 were generally satisfactory and played a key part in the successful approval of a number of new medicines. All regulatory compliance observations that were raised during inspections at our sites and at our partners’ sites were resolved satisfactorily. Where appropriate, the experience and knowledge obtained as a result of these inspections is shared with other sites across the Group.
During 2007, we satisfactorily responded to the regulatory compliance issues raised by the US Food and Drug Administration (FDA) at MedImmune’s FluMist bulk supply manufacturing facility in Speke, UK. Since resolving the compliance issues that were listed as a part of a warning letter received from the FDA in May 2007, we have continued to take further quality improvement steps to ensure product supply is available for future influenza seasons.
Throughout the year, we have been actively involved through our membership in industry associations in influencing new product manufacturing regulations, both at national and international levels, primarily in Europe, the US and Japan.
Safety, health and environment (SHE) management
The Board is responsible for setting the direction for SHE management within the Company and for ensuring that a SHE policy is established and integral to our business activities. The Chief Executive Officer is responsible to the Board for the management and performance of the Company’s businesses within the framework of the SHE policy. On at least an annual basis, the Board and Senior Executive Team formally review, and provide direction on, the Company’s SHE performance and compliance status.
SHE operating standards are increasingly stringent, with regulators placing particular emphasis on environmental issues and the safety of chemicals. Our manufacturing sites – whether they are traditional chemical production facilities or biologics manufacturing sites – operate under various regulatory and licensing regimes and internal management systems, and we are focused on meeting all applicable requirements. There are currently no SHE issues that constrain us from fully utilising any facilities.
We continue to track, actively participate in, and pursue internal initiatives relating to international research and policy developments associated with emerging SHE policy and legislative matters. Examples include pharmaceuticals in the environment, chemical control regulations and climate change. It is possible that we could incur capital or operational costs in connection with future voluntary activities or regulatory developments relating to these issues including, for example, process or equipment changes associated with wastewater quality, raw material substitutions, ‘green chemistry’ initiatives or energy efficiency. We are addressing these matters proactively.
More about our commitment to safety and health and the environment is set out in the People section and Environmental review repectively. In addition, further information about our approach to and detailed statistics about our SHE performance can be found on our website, astrazeneca.com.
Planning for the future
Benchmarking our supply chain performance against our industry peers shows that, in terms of supply chain efficiency, we perform very strongly. We are committed to building upon the significant progress already achieved through the changes to our supply system, the embedding of lean and efficient processes and the improved focus on the customer. In 2008, we plan to focus on four areas of activity that will drive further improvement: continuing to review asset utilisation and potential outsourcing opportunities; driving programmes to support ope#rational excellence; integrating assets and services in distribution; and further integrating all elements of the supply chain to drive competitive advantage. These activities will be underpinned by the development and implementation of an information strategy that best enables the delivery of supply chain excellence, coupled with the development of a culture that will deliver sustainable long-term growth.
