Take an in-depth look at "lean" principles. Closely associated with flow manufacturing or demand-pull production, the lean movement is about more than eliminating waste. It's also about maintaining a razor-sharp customer focus— not just what the customer wants but also when, where, why, and how much. The article includes: A brief history of the lean philosophy A glossary of key terms How new technologies make lean possible Extending lean principles from manufacturing to the broader enterprise Real-world success stories

As Published In November 2004

Lowering the Cost of Compliance
By David Baum

Napp Pharmaceuticals Applies Lean Principles to its Regulatory Initiatives

Today's manufacturing companies are taking a broad view of compliance, using it as an umbrella term for all aspects of governance, risk management, and regulatory compliance. This is particularly evident for process manufacturing companies, which must not only abide by new fiscal regulations but also adhere to strict regulations concerning the manufacture and distribution of their products.

"Compliance pertains wherever there is a defined set of rules and regulations that must be adhered to and where proof of compliance to these rules and regulations is required," says Tony Mulligan, senior director of the industrial sector for Oracle in Europe, the Middle East, and Africa.

There are four distinct types of rules and regulations facing process manufacturing companies:

• Generic regulations such as International Accounting Standards and Sarbanes-Oxley
• Industry regulations that are specific to certain industries, such as the Federal Drug Administration's 21CFR Part 11
• Customer requirements enforced by specific clients, such as how particular products must be manufactured, checked, shipped, or invoiced
• Internal rules and procedures, such as standard operating procedures and policies governing external communications

Coming to grips with these requirements is motivating companies to adopt integrated software applications that support formal business processes and consistent reporting methods. "In the end, compliance is an information management problem," says Mulligan, "and thus entails control over the storage, access, and presentation of data."

Relieving the Pain

Most ERP suites include integrated reporting and analysis capabilities that enable manufacturers to trace materials from the time they are received from suppliers until they are shipped to customers in the form of finished products. Being able to make inquiries into lot genealogy makes it easier to troubleshoot quality problems and, ultimately, minimizes the cost of product recalls.

For example, Cambridge, England-based Napp Pharmaceutical Group has used Oracle applications since 1999 and currently relies on Oracle Process Manufacturing to fulfill GxP-compliance issues relating to manufacturing practice. (GxP is a general acronym used for GDP [Good Distribution Practice], GMP [Good Manufacturing Practice], GLP [Good Laboratory Practice], and so on.) These regulations are enforced by the Medicines and Healthcare products Regulatory Agency (MHRA), which enforces regulations for pharmaceutical companies in the U.K.

"We like to use the term best practice rather than compliance, because the gist of compliance involves proving that you are doing things correctly and consistently," says Chris Jones, Business Systems manager at Napp. "Testing and validating your automated processes is simply good business practice."

Snapshot Napp Pharmaceutical Group Cambridge, U.K. www.napp.co.uk Napp uses its expertise in controlled release technology to develop specialized medicines, especially for the relief of severe pain. Year founded: 1920 Employees: 850 Annual sales: U.K. sales of £56.7 million Oracle products & services: Oracle E-Business Suite Payables, Cash Manager, Assets, General Ledger, Process Manufacturing, and Receivables applications

Napp makes prescription medication for the relief of severe pain. Jones is charged with the development and support of the company's manufacturing and finance systems. "As a direct result of using Oracle technology, we received a good audit review from the MHRA," he reports. "In the eyes of the regulatory authorities, each automated business process must be predictable and repeatable. In 1998, we performed user acceptance testing using hundreds of manually written test scripts on business scenarios to ensure that employees were properly trained using validated software, and then we followed up with simulated training using specifically written standard operating procedures (SOPs). Napp uses document management systems to control SOPs, making sure they reflect the use of the software at all times—and in a way that is compliant for its industry."

Oracle Process Manufacturing uses precise, recipe-based manufacturing techniques to help Napp formulate its products to individual customer specifications. As part of Oracle E-Business Suite, it also helps the company manage variability, optimize capacity, and drive continuous process improvement—fundamental drivers for creating a Lean enterprise.

Jones says the best-practice mentality Napp applies to regulatory compliance is also enforced within other corporate domains, such as finance, where enterprise reporting practices must be tested and validated. "We use the same best-practice principles across the entire software suite," he notes. "Because we choose to use computer systems to help produce our products, we must demonstrate that the way we are using the software, configuring the machinery, training our people, and reporting results is accurate and auditable. That is the convincing story we must present to the regulatory authorities."

Napp worked with Oracle partner Mi Services Group, headquartered in Reading, U.K., to implement the original installation of the Oracle system in 1997 and 1998. This included the initial validation of the system and the development of specific functionality to meet the particular needs of Napp and the regulatory compliance requirements of the MHRA. Today Napp has a strong Lean team of IT specialists who perform system maintenance and support and upgrade projects to maintain the validated status of their ERP system. IT works very closely with Quality Assurance to make sure GxP requirements are always being met.

"We try to help clients achieve what we call 'least cost of compliant ownership,'" says David Stokes, Life Sciences Industry Manager at Mi Services, a consulting company that supplies regulatory compliance assessment services to companies in Europe and the U.S. "Clearly, IT systems have to implement and support business processes that comply with regulations, and these systems have to be validated. But how do you prioritize the requirements, and how do you minimize the cost? We help manufacturing companies assess the risk factors behind these questions."

"Compliance isn't achieved just through good software. You need good processes and management as well," emphasizes Jones.

Removing the Waste

According to Bob Parker, an analyst at Boston-based AMR Research who specializes in the discrete manufacturing industry, government compliance is really "anti-Lean" since it adds an additional layer of accountability to the manufacturing process. But ERP software can streamline the process. For example, if a medical device company is required to record the serial number or lot number for every component that goes into its equipment, having software that can help capture that information with as little human intervention as possible will help the company keep its production lines flowing while meeting regulatory requirements.

"An ERP system creates a 'system of record'—meaning it captures the evidence for you," Parker says. "Without it, you must duplicate information, and the activities of extracting, storing, accessing, and analyzing that information all become more difficult and wasteful."

Stokes agrees with Parker, adding that too many companies are treating compliance as a tactical issue and not thinking strategically. "There are numerous environmental regulations, health and safety regulations, and financial reporting requirements at most firms," he points out. "Managers should develop a common approach to these regulations so they can achieve true cost savings. The goal is to reduce the cost of monitoring internal compliance, as well as provide better-documented evidence that those processes are being followed."

For more information Oracle Tutor Oracle Tutor Demo Oracle University COBIT standard

Oracle created the Oracle Compliance Framework to help manufacturing companies manage their compliance efforts and improve their overall corporate performance. The Oracle Compliance Framework helps users streamline policies and procedures, enforce standard business practices, and reduce the risk of errors. Mi Services uses it to help clients enhance internal controls, improve the visibility of key processes, and enable corporate performance management.

"Whether it is corporate compliance, training compliance, health and safety legislation, or manufacturing compliance, the same principles apply—meeting the customer's demand," Mulligan says. "There are internal customers, governmental authorities, financial overseers, and so on—each with its own set of demands. Meeting them effectively can actually be construed as a competitive advantage."

In other words, while the introduction of more-stringent regulations is requiring companies to look for better ways of capturing regulatory information, when properly approached it has the side effect of raising efficiency for the company overall.

Getting there, according to Mulligan, begins by asking questions. How easy is it for users throughout an organization to see, transmit, and act on quality data? Are managers setting up the correct processes and procedures by which their employees should operate? What are trainers doing to make it easier for users to understand those processes—for example, are they deploying self-service information systems for viewing and analyzing pertinent data? How are these efforts directed at improving corporate performance? "You can't consider business efficiency and compliance as separate issues," Jones concludes. "They really are two sides of the same coin."

Business Process Documentation Critical for Compliance By Caroline Kvitka One of the most important initial steps for compliance with a range of regulations, from Sarbanes-Oxley and the Health Insurance Portability and Accountability Act (HIPAA) to quality standards like ISO 9000 and Six Sigma, is business process documentation to assist in identifying risks and mitigating controls. While documented procedures alone cannot strengthen corporate governance, they are a necessary component of compliance. In 2003, the Sarbanes-Oxley Act turned documenting processes and internal controls from a sound business practice into a regulatory requirement for most firms traded on U.S. exchanges. Information technology is another emerging category for process documentation. For any large IT implementation, companies need a way to document processes and procedures about running, maintaining, and securing their IT environment. In addition, standards like COBIT—a generally applicable and accepted standard for IT security and control practices—are driving adoption. Oracle's solution for process documentation is the tight integration of two existing products, Oracle Tutor and Oracle Files. Oracle Tutor plugs into Microsoft Word for easy business processes documentation, while Oracle Files provides a place to manage documents securely. Oracle Tutor is a process authoring and publishing tool with automated flow-charting and capabilities for building desk reference and training manuals. It includes a set of several hundred predefined, editable business process models that serve as a launching point for quickly documenting your processes. With Oracle Tutor, what was once a cumbersome and time-consuming task turns into a simple editing exercise. Oracle Tutor also includes a fully defined methodology that describes all aspects of the documentation process, such as document types and how they relate, their structure and layout, as well as who owns each document. "Ease of maintenance is critical in updating individual documents and in managing the update process itself," says Stuart Dunsmore, product development director at Oracle. "Simplicity helps to ensure documents are kept up-to-date, thus Tutor's development focus." "Since up-to-date business process documentation can be one of an enterprise's most valuable assets, storing it in a secure place is crucial," adds Harald Collet, senior product manager at Oracle. "Using a collaborative environment like Oracle Files adds the benefits of approval workflows, automatic versioning, and access controls for this valuable enterprise asset." Oracle Files provides content management in a collaborative environment where organizations benefit from a single source of truth across the enterprise. Any Oracle Database customer can use Oracle Tutor and Oracle Files, regardless of what ERP system they are running. Ready to get started on your business process documentation? Enroll in a weeklong Process Editing Workshop, facilitated by Oracle and its partners, where process owners to roll up their sleeves and dive into process editing—and can get through 80 percent or more of their first drafts during the week. To read more, go to oracle.com/education/tutor_4_week.pdf.