Boehringer Ingelheim has a new approach to supplying pharmaceuticals to the NAFTA region. The key is in the company’s FDA-approved facility in Mexico, which combines state-of-the-art equipment with expert management and cost-effective production processes to bring pharmaceuticals to market at competitive prices. What’s new is that the company is making this production prowess available to other manufacturers for outsourcing their production in the region.
Boehringer, one of the world’s top 20 pharmaceutical companies invested heavily in its Mexican operation and managed to turn it into a productivity showcase. In 1998, it won FDA approval with its high-tech, low-touch productivity methods. Since then the company has been grabbing market share in the NAFTA region with its own line of consumer and prescription products and sales of almost half a billion dollars. A little over half of that is sold right inside Mexico.
But execs at Boehringer see a new opportunity on the horizon. Trends in consumer spending and global pharmaceutical production show an increasing interest in high volume, low cost products and Boehringer wants to use economies of scale to accomplish that for themselves and other companies. The Mexico production plant is likely to play an important role in that strategy.
Investing in Production
“We have a huge plant here,” begins Emerson Vasconcelos, Division Manager at Boehringer. “with the capacity for 140 million units per year. We decided to invest in a new business segment, which is manufacturing. Besides producing our own medicines, we are offering manufacturing services to other markets. Our goal is to grow this business.” To this end, Boehringer has invested heavily into the production facility. “We are FDA approved and a big, family-owned company,” he continues. “Most of our competitors in this area are small and medium-sized companies that are not as secure for outsourcing.” While most large producers go to India or China for their high-volume production needs, they find the Boehringer facility closer to the market with security and price to match.
The company’s five-year plan, which began in 2002, was to invest $70 million to expand and update its production technologies. Although Mexico is Boehringer’s seventh largest market, the company is investing in the country for strategic reasons, mostly to supply the NAFTA market and showcase its production capability. “We have 20 plants all around the world. In North America, the goal was to make centers of excellence and Mexico was chosen as the key location for its quality and competitive economic equation.”
The company also has plants in the United States, some of BI blockbousters are produced in Mexico. “We decided to become an FDA site about 10 years ago. There is only one other FDA approved site in Mexico and that one is for veterinary medicines, so we are the only one for human products. Now, about 50 percent of our production is for Mexico and the rest is for the United States, Canada and South American countries, like Brazil and Argentina.” Vasconcelos, who is in charge of toll manufacturing and supply chain management for the Boehringer’s operation in Mexico, is Brazilian. He spent four years in Germany at the company’s corporate headquarters before coming to Mexico.
Portfolio of Products
On the production side, the Boehringer plant specializes in two forms: solids and liquids. Solids include tablets and coatings, which are generally packaged in blister packs or aluminum bubbles. Liquid products include drops and syrups with a variety of packaging options. “Solids are higher volume and our process is FDA approved. These go more to the United States because the U.S. does not like the liquids as much,” notes Vasconcelos, speaking of the consumer products. “We also just renovated our plant for the production of liquids, with new machines and packaging. Our production equipment is mostly from Italy and Germany and is state of the art as much for its production capabilities as for its environmental friendliness. We don’t mess up the environment and the result is safe and efficient.”
Boehringer’s Mexico facility is one of its most productive sites and it has been applying manufacturing concepts like lean manufacturing and six sigma, used in semiconductor plants like Motorola and Intel. “These are the techniques that can increase our competitiveness and production know-how. We have been translating these principals to the pharmaceutical industry.” The key is to make products cleaner and stronger with fewer production stages, making the process more efficient and more cost effective. “We employ technologies that many companies can’t afford on their own and we have production engineers we call black belts who are highly trained in these concepts. These black belts drive our improvement processes.”
The renovated production facility occupies three levels and uses gravity to help propel products and avoid human interaction. “Humans never touch the product, from the third floor where formulation occurs, to the tablet machine, to the packaging – three levels. That’s why we have FDA certification,” boats Vasconcelos. But even with so little human interaction, the company employs almost 2,500 in Mexico. “We have animal health in Guadalajara, and we do our own R&D there. But this is not a large part of the operation.”
Its own key product lines include consumer medicines like analgesics and antiinflammatories. The company also produces prescription products for respiratory problems, viral immunity, and hypertension plus heart medications specifically for hospitals. Distribution begins at the facilities in Mexico City, where products are warehoused and shipped to large chains and wholesalers. “We might be losing some of our patents in the coming years, but we are also launching several new products. We have some ecological products and new cures that are coming. We hope to enlarge our portfolio with this new research and development.”
Mexico and the World
In 1995 the Mexican operation got a major overhaul. “The company decided to invest heavily here in Mexico because of its location in the NAFTA region. A new plant was built with three levels and state-of-the-art equipment in 1996. Then, in 2002, the original plant was renovated to bring it up to its current standards. That’s where the new liquids division is located.”
Since then, the company has been building its presence in Mexico while increasing exports to the rest of North America. “The Mexican market continues to grow, but there are many challenges,” recounts Vasconcelos. “There is a robust black market, but we hope the new government will help with this problem. Also, generic medicines are just beginning to take off here. People don’t have the money for originals. Right now, about 5 percent of the market is generic, but we think this will grow with the new government.” Vasconcelos does not lament the generics, since his company’s outsourcing operation is setup to help bring these cost-effective products into Mexico, through its cost-effective packaging and distribution outsourcing services.
The United States is the company’s largest export market, but it also exports to South America and Asia. “We are open in Mexico and the company has a good reputation worldwide. U.S. companies can use our qualified production center at a low cost, but not only companies that want to sell to the states…also companies that want to enter the market here in Mexico. We have distribution inroads because of the geography here. It looks easy, but because of the mountains, it’s challenging to reach all parts of the country…a logistics challenge. In Mexico, as well as other parts of North America, we have competitive advantages. We can help companies enter into this market with their own products.”
With new product innovations, key brands, cost effective packaging methods and regional distribution, Boehringer is likely to continue as one of top 20 pharmaceutical companies in the world. The others are likely to hire out Boehringer’s production capabilities for their own products and Boehringer wins either way.