Cost-Benefit Analysis of GlaxoSmithKline’s Project

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Cost-Benefit Analysis of GlaxoSmithKline’s Project

In the second decade of the 21st century, with research and development carried out in every field and innovative and improved method or processes are being introduced along with the increase in knowledge and information in those fields. As a result of this increase in knowledge and information and processes, for a company, it is necessary to adapt to these new procedure and technique not just to stay in and improve their business but also to meet the daily increasing requirements and demands of the customer. For a pharmaceutical company, this is even more applicable.

GlaxoSmithKline (GSK) in Pakistan, manufactures pharmaceutical and healthcare products. It is also the largest pharmaceutical company in Pakistan. GSK Pakistan exercise mainly in two industrial division. One of their pharmaceutical products, Augmentin, an antibiotic prescribing, was change from bottle packaging to a blister packaging, as it was required to be secured from the moist and humidity in the weather. Augmentin is a high-demand product and having going through a change phase it was required to meet the complete demand of the consumer.

To meet this demand, it was decided to increase the OEE factor of the entire production line of Augmentin blister from production to packaging. After the OEE was calculated using APQ method, it was found out that out of all three factor (availability, performance and quality) that effect the OEE, availability was the factors with the least numbers.

To find the reason and the causes of this low availability, a detail analysis/survey and examination was done on the floor of the production line and it was found out that there is a great number of unplanned stops on the production line, due to the workers at the packaging site, not being able to pack the Augmentin boxes at a speed that synchronize with the production, hence the line was required to stop at frequent intervals which resulted in a loss of availability.

To increase the productivity and OEE, these unplanned stops needed to be reduced. To tackle this issue, it was decided to make a jig that would assists the worker at the packaging line. This jig was supposed to, not only reduced the unit time required for filling a complete carton but also reduced the number of workers required on the packaging side.

To find the feasibility of the jig and also its possible outcomes, a cost-benefit analysis was required to be carried out. The central question being that whether or not this jig is economically efficient and will it be able to help the company’s business. This was only possible by doing a cost-benefit analysis.

Cost-Benefit Analysis

Cost-benefit analysis is a tool and a method to determine predict whether a project, program, policy or an activity is feasible given the objectives and requirement that have been given and the assumptions that have been made (Oskam, 2008). In general, a cost-benefit analysis aims at answering whether a project or activity or program should be executed and if funds are limited, which elements should be selected. In doing this, the specific project is compared to its next-best alternative (Mishan, Quah; 2007). A cost-benefit analysis calculates both the positive and negative parts of the project. The worth of a cost–benefit analysis depends on the preciseness of the individual cost and benefit estimates. To predict the worth and the outcome of a project/program, accurate data and calculations are required.

A cost–benefit analysis can have the following steps:

Define the goals and objectives of the action;
List alternative actions;
Select measurements and measure all cost and benefit elements;
Predict outcome of costs and benefits over the relevant time period;
Convert all costs and benefits into a common currency;
Calculate the net present value of actions under consideration;
Perform sensitivity analysis;
Adopt the recommended course of action.

By using the cost-benefit analysis, we can evaluate and decide the course of action to take. Weather to go along with the project, to choose among a number of different alternatives or to drop and cancel the project entirely.

It was found out that, the packaging box (carton) didn’t have enough tolerances that would have been required for the jig to be placed in the box to assist the workers in packaging and then removed after the packaging has been completed. Therefore, the packaging box (carton) was required to be changed dimensionally, just enough to give the jig tolerances it required for its operation. This change in box would require an additional cost to the project but it will also give an opportunity to the business aspect of the project. After the size of the carton was changed, it was now able to pack 195 packs of Augmentin instead of 180 as it had been doing previously. This data was also to be included in the cost-benefit analysis.

Data required for CBA

In our case, cost–benefit analysis was required to calculate all these costs:

Investment cost;
Material cost;
Manufacturing cost;
Labor cost;
Number of workers before;
Number of workers after;
Price of packaging box before;
Price of packaging box after;
No. of Augmentin packs in packaging box before;
No. of Augmentin packs in packaging box after;
Unit price of Augmentin.

Steps Used for CBA

In this case it was the cost–benefit analysis was carried out using this approach:

Develop alternatives;
Identify all the benefits and outcome of these alternative;
Identify all the direct cost, indirect cost, the overheads;
Assume the expected return as accurately as possible;
Calculate the profit of each alternative;
Depending on the calculations, choose the most suitable result.

Different Cost and Expenses for Different Materials of Jig

The packaging box i.e. carton was required only to be changed in its size that is dimensionally. But as for the jig, it could have been made of various different materials. All having their own advantages and dis-advantages. These different materials will have different expenses (material cost, manufacturing cost, labor cost) and different returns. This would result in different data for each of the material. Since the jig was just to assist in the packaging and was not required to lift heavy loads and was not prone to vibration and impact. Keeping these factors in mind and also the ergonomics, such materials were selected that were light (as the workers were required to place the jig in the packaging box and then remove it after the packaging has been completed), had low material cost and low manufacturing cost. Therefore, for the cost-benefit analysis, different materials of jig would require different calculations of cost-benefit analysis.

A model run (test) was done using a jig made of wood to collect the required data and to see if the jig would give the desired and predicted results.

The risks of this project were also considered.

Using the collected data and the obtained from the model run, the cost benefit analysis was carried out for each material. By subtracting the cost of the project from the increase in revenue, the outcome and the result of each alternative was obtained.

Selecting Appropriate Alternative

A cost-benefit analysis is a tool that takes into all relevant consequences of a policy into consideration and compares the benefits with costs. If benefits outweigh the costs, the project is feasible and could be implemented as it could generate business for the company. If the costs outweigh the benefits, the project is not feasible and should be cancelled as it can a source of loss for the company.

After the cost-benefit analysis was carried out, different results for different alternatives were obtained. These results of the cost–benefit analysis for different alternatives concluded that the benefits of the project did outweigh the costs of the project, hence, the project was indeed feasible.

Finally, these different results of different alternatives were compared, and by taking all the pros and cons of different alternative into consideration, the most appropriate and suitable alternative was selected for the project

References

Oskam, A.J., Schipper, R., (2008) “Rural Economic Analysis.” Wageningen University, Wageningen, the Netherlands.
Mishan, Quah, (2007) “Cost Benefit Analysis.” Fifth edition. Routledge, New York, America.

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