Case Study - New Operations Plan & Design

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Jay Martin September 2022 Q-Operations Design & Launch.ppt
Case Study
New Operations Model
Design and Planning
(Life Sciences)

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A Canadian pharmaceutical & over-the-counter drug new venture.
Operations Design The Client

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A pharmaceutical production facility was acquired by established
Canadian investors for a multi-channel business venture.
• Client had purchased a large facility and had already been producing and testing
production of new products and its production capabilities.
• Multiple partners with expertise and branded products had signed letters of intent
to create partnerships. An American OTC partner was going to co-locate inside.
• The client company had no experience in order fulfillment (packaging, shipping)
for retail pharmacies nor in mail order delivery and e-commerce fulfillment.
• The majority of the management team was new, and the CEO was a former Retail
Pharmacy CEO who had been hired a few months prior.
• Much of the facility remained unfinished, with a variety of decisions related to
space allocation still needing to be made.
• A new Chief Operating Officer was being recruited to run the operations and
receive the hand-off from the consultant (Chief Innovation) with how to proceed.
• A variety of rough agreements (Letters of Intent) had been signed, but the details
and legal agreements had not been agreed upon, nor actually understood.
Our Operations Design was part of a larger assignment involving the
joint ventures, contract finalization and private labeling.
Operations Design Situation

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The Assignment involved numerous work streams. The critical paths
related to the Operations Design & Plan are outlined below.
This presentation focuses on the details (D) of the Operations Design
and is a subset of the total work completed for the Client.
Operations Design Assignment
Finalize
Partnerships &
Legal Agreements
• Conversion of the LOIs into legal contracts
• Finalization of contracts with the client’s law firm and
both partner General Counsels and Chief Executives
• Understand the operational and financial implications
Financial Models,
Risk Assessment &
Scenario Planning
• Create assumptions (e.g., regulatory, taxes, market)
• Complete a risk assessment with mitigation plans
• Identify likely scenarios and financial implications
• Build a dynamic, comprehensive revenue/cost model
Support Board of
Directors Approval
• Description of overall concept and joint ventures
• Demonstrate strategic fit and competitor responses
• Detail the different options, scenarios & financials
• Outline the exits/off-ramps for the different initiatives
Operations Design
& Implementation
Planning
• Identify all the needed components to execute
• Detail out sub-areas and questions to be answered
• Find or create all information to complete the design
• Prepare an implementation plan with priorities
A
B
C
D

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Though our work streams had significant overlap, below are the
major activities.
Operations Design Approach – Four Work Streams
A B C D
Partnerships and
Legal Agreements
Financial Models, Risk
Assessment and
Scenario Planning
Board of Director
Approval Support
Operation Design and
Implementation
Planning
• Review Letters of
Intent and related
documents
• Review impacts of the
financial and
operational implications
• Discuss with partner
CEOs and confirm
objectives of each
• Draft legal contracts
• Review legal contracts
with GCs and outside
counsel from all parties
• Manage the focus and
work of the primary
client outside counsel
• Present financial
models showing final
agreed upon values
• Finalize and sign all
contracts
• Develop dynamic (i.e.
users can alter it)
financial model(s)
related to: capital
requirements, profit
sharing, capacity,
operating costs, taxes
• Review profit sharing
model and
assumptions with
partner CEOs
• Complete a risk
assessment of each
venture, including risk
categories, likelihoods
and mitigation
strategies
• Create and model
different likely
scenarios and plan our
reaction to each
• Understand Board
concerns and
expectations of what
they would like to see
• Create a presentation
deck for Board Meeting
• Prepare any expected
resistance with
questions & concerns,
and our responses
• Understand any open
questions or resistance
• Research and confirm
(or revise) areas
• Re-present or send
• Obtain formal approval
for go ahead
• Receive capital
authorization release
• Inform partners, begin
implementation
• Identify all the different
elements to create the
Operations Design
• Review leading
practices or industry
specifics to understand
each functional area
• Assess existing SOPs
and existing operations
to ensure transition
• Build out all sections of
the plan to ensure it is
comprehensive
• Review with new COO
designate and explain
• Finalize plan to
incorporate needed
changes
• Deliver final plan to
COO for timeline and
implementation needs

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The Analysis and Results sections are presented together as they were
done in parallel.
Operations Design Analysis & Results
• The main deliverable of this part of the client work was a Report on how to structure
and launch the new operation. Analysis and Results are presented in one section.
• The Analysis work of this engagement included:
– Identifying the preliminary areas required and building out what was needed.
– Review the components of the Financial Model and Partnership agreements.
– Review existing operations, documentation and software capabilities.
– Discussed with current and incoming (e.g., new COO) executives.
– Complete layout the structure of the deck for the Operations Model & Design.
• The Results portion was the completion of the information included in the slides of
the deck, as well as final fine tuning of the content of each slide.
• The Final Report has over 100 pages of details. This Case Study has both a long
version (to support others doing similar projects) and a short version (show a brief
overview of Chief Innovation’s work and capability’s). This is the Short version.
This venture was unique and complicated and was in the national news numerous times. UOMs (volumes and
weights) and DS references in the slides will appear confusing given the ‘scrubbing’ of the client data. All data is
illustrative, and in any conversations we will be able to disclose specifics to help explain the client’s situation.

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The Operations Design Plan had 16 sections, which included the
implementation plan developed with the incoming COO.
The remaining eight section descriptions are on the following page.
Operations Design Approach - Report Sections
Section Section Name Contents Description
1 Contracts & Agreement
A summary of the different agreements and contracts was in
this section, as there were multiple with different partners.
2 Launch Planning
Implementation items were categorized as High, Medium and
Low, and totaled over 100 different actions with assignments.
3 Partners
Specific actions and coordination for each of the partners was
detailed out to ensure a successful implementation.
4 Products
Everything related to the different products for both medical
and over-the-counter products and composition.
5 People
All areas related to staff, management, support, and reporting,
including new job descriptions and temp support.
6 Production Control
All facets for Production Control, Forecasting and Inventory
Planning & Management were all included in this section.
7 Processes
Top level processes planned for all fulfillment operations. The
final processes would be developed with the new COO.
8 SOPs
Standard Operating Procedures had already been developed
for most areas and were audited. This section reflected those.

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The Operations Design Plan had 16 sections, which included the
implementation plan developed with the incoming COO.
This document was shared with the executives across all the partner
companies and was critical for its execution.
Section Section Name Contents Description
9 Quality
All of the requirements and places inside the processes where
there will be Quality Control & Quality Assurance steps.
10 Metrics & Reporting
All measurement and reporting to all parties, including methods
and rationale as to ‘why’ it will be provided.
11 Finance
Details of all areas of accounting, particularly payment to and
from outside entities.
12 Facility
Concerns and accommodations for different operational areas,
including collocated operations, inside the facility.
13 Product Security
Identification and mitigation of all places in the process or
locations in the facility where product would be ‘lost’.
14 IT Systems
All IT needs from timecards, to issue tracking and billing.
Comprehensive IT systems (planned) and requirements.
15 Packaging Packaging materials and label details and issues.
16 Transportation
Parcel and bulk carrier options and contact information for
service providers along with details and rates.
Operations Design Approach - Report Sections (continued)

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The legal agreement highlights included:
• The agreement and renewal timing in years.
• Exclusivity agreement for PartnerCo for distribution inside of Canada.
• Supply agreement for the molecule raw material with mark-up established.
• ClientCo ‘may’ be asked to purchase PartnerCo products, reimbursed at 18%.
• Wholesale pricing to ClientCo for White Label products.
• Specialty Products exclusions.
• Profit sharing payments from PartnerCo to ClientCo on all revenue after taxes.
• Packaging requirements, supplier and payment.
• Reimbursement for (or provides) packaging for all Supplier branded products.
• SKUs to be supported by ClientCo and specifics for storage.
• Who/how all shipping, taxes on wholesale and testing costs will be paid.
• Responsibility for maintaining the inventory and all associated costs.
• PartnerCo will pay for or reimburse all taxes, including sales, excise, CH and SRF.
• Upfront investment by PartnerCo in the form of a debenture agreement.
Given the assumptions, an estimate for overall profitability was made.
Operations Design 1 - Contracts & Agreements

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The Implementation Launch Plan provided a three-tier list of more
than 100 activities.
1. Finance – Confirm taxes and how & when paid, and by who (e.g., ClientCo or PartnerCo)
2. Transportation – Schedule Canada Post to come every day for a pick-up (believe $3 charge!)
3. Transportation – run some parcel tests to make sure it runs smoothly
4. Transportation – test the same day delivery option
5. Space – confirm Bldg 50 is where we will move to when we outgrow Packaging Room
6. Space – fit out Bldg 50 for lighting, HVAC and Security in preparation for a move
7. Space – get tables, racks, totes, mats and an other supporting materials for Production
8. IT – figure out how we can do Vendor Management with Raw Material suppliers and their delivery
9. IT – complete an in-depth assessment of ERP’s functional capabilities with our own requirements
10. Packaging – stock up on Packaging materials, arrange replenishment if going to continue using
11. Packaging – list all the Packaging material options with cost, lead time, expedite fees, shipping, etc.
12. People – start searching for the ‘Packaging Machine expert’ (he is not in the people plan)
13. Product – visit local facilities that have Packaging Machines just to understand them
14. Packaging – ask around industry to find out how people are packaging their bags similar to ours
15. Packaging – review ‘fit’ of Packaging machine to task – Jay’s concern: waste of product on floor
16. PartnerCo – ask them can only two Raw Material suppliers be shown on their website?
17. Process – do dry run on floor with process in deck to find additions and errors
18. Contract – review Jay’s contract issues, ensure they were resolved or we are prepared for them
Operations Design 2 - Launch Planning

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We identified major ‘Product’ areas of concern that arise when
working with Drug Substance suppliers.
Area Subject Management Item
Contracts
Drug Substance Producer List New DS suppliers to be added or existing ones to be eliminated?
Contract Ownership
Who or which contract will ClientCo use to acquire product?
Status if a new contract is being created or negotiated.
Inventory
Drug Substance Which DS formulations do we intend to carry? Adding any?
Package Sizes What packaging sizes will we have for each product?
SKUs Which do we want to add, delete or promote?
Packaging Materials Do we have enough of the right packaging material for our needs?
Target Inventory Levels For each DS & packaging material SKU, what are our targets?
Lead-times Lead-times for different strains from each DS, yield visibility.
Aging Concerns Review of existing stock for slow moving or at risk product.
Quality
Quality Issues Addressing any incoming quality or other problems with DS firms.
COAs Deciding when we need COAs and ensuring we receive them.
Testing Conducting testing and deciding which Labs we approve of.
Commercial
Volumes and Orders Understand volumes on DS and ordering details.
Price Changes Discuss and DS price changes and potential impacts.
Prices Paid Track batches, prices paid and inventory of each batch held.
FIFO for Reimbursement Reimbursement from PartnerCo will be for FIFO by batch price.
Operations Design 4 - Product

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The major organizational roles and requirements were identified.
Operations Design 5 - People
And Job Descriptions for all of the key roles were created.
Qty Role Duties Profile Ideas
Part-
time* Manager, Operations
Overall leader for operations. Everyone
reports to him/her. Primarily focused on
Production and oversight of rest of staff.
Vision was 8-15 years exp, maybe ex-
military or past supervisory position.
Prefer a degree. Hands on personality.
1
Manager, Sourcing &
Inventory Management
Manage DSs, contracts, shipments,
packaging needs and sources. Run
forecasting process, balance inventory.
APICS certified or professional with
Inventory and/or Sourcing. Great with
Excel and Math. Well organized. +10 Yrs.
1 Supervisor / Lead
Be floor lead over the rest of the packaging
staff. Be able to take over some of Manager,
Operations duties when needed. Fulfillment
Not Management but shop floor lead. No
degree, not overhead and will be fulfilling,
not overseeing. 10-15+ years experience.
Multiple Fulfillment Staff
All floor work from making packages, to
weigh flower to sealing and labeling.
Reasonable intelligence and trustworthy.
Good work ethic, prefer no degrees, and
ex-military or older would be interesting.
1 Inspector
Same profile as existing Quality people, and
knowledgeable about the process, testing,
what to look for and all the regulatory issues.
Reasonable intelligence and trustworthy.
Prior Quality knowledge in a Regulated
industry, our products would be huge plus
1+ Pharmacist
Discuss with CEO, but believe vision was the
follow-up with patients.
1+ Nurse
Discuss with CEO, but believe vision was the
follow-up with patients.

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Production Control, Forecasting and Inventory Management are three
areas that we wanted to ensure received proper planning.
Top-level functional requirements of the forecasting tool were created.
Forecasting
Forecasting is a bit of an art and science. The objective is to use
various inputs, including Demand Signals, to estimate the future
number and size of orders within a time frame. This is somewhat
unique as compared to other situations, and the lack of IT systems,
data and functionality will all make this a major challenge.
Production
Control
Production Control for this example is going to be more scheduling.
Being able to balance product, labor with customer demands will be a
challenge, and though demand is expected to be variable, we can
manage this variation a number of ways. One of the most effective
will be having MTO (Make-to-Order) demand be produced on the
days it is due and use existing extra labor for MTS (Make-to-Stock).
Inventory
Management
Given the variety of inventory (DS, Variants, SKUs), the need to
source from different DS suppliers, the lack of lead-time to fulfill
orders and the fact that ClientCo will ‘own’ the inventory (i.e. working
capital), ensuring the balance between avoiding OOS (out-of-stock)
with having too much (and possibly product going ‘bad’), becoming
adept at this will be an incredibly key skill for the business.
Operations Design 6 - Production Control

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Major phases and milestones of critical Processes were created.
Operations Design 7 - Processes
# Short Full Description Completion Milestone
Primary
1 OTC Sales
Selling to Retail OTC
accounts
Orders to OTC confirmed by Production and
communicated back to the accounts for delivery times
2 Confirm
Confirmation of patient
documentation
All patient documents reviewed and information contained
on them has been confirmed
3 Prescribe
Confirming the
Prescription for Patient
Patient requested products and amounts have been
approved and passed to ClientCo fulfillment team
4 Bulk Bulk order received Bulk product received, tested and putaway into storage
5 Packages
Obtain packaging all
materials
Packaging material (bottles, boxes, bags and DS CMO
sent) approved, inspected putaway
6 Pre-Pack
Pre-pack product in
bottles or bags
Pre-decided amounts of DS or other products is
measured and put into containers in advance of orders
7 OTC
Package and deliver
OTC orders
OTC items are pulled (if pre-packaged in 6) or bagged
and consolidated for shipment to Retailers
8 Medical
Package and delivery
Medical orders
Receive, fill and ship orders of medical products to
patients via courier or delivery service
9 Post
Close out paperwork
and perform follow-up
Investigate any issues with delivery, confirm all delivery,
payment and inventory information, close out transaction
Task level details were to be completed in conjunction with ERP rollout.

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New DS suppliers and fulfillment operations required preliminary
assessments of the impact to QA areas to be completed.
• Audits – will expand scope given new rooms and processes
• SOPs – major effort to add and update SOPs, partially due to changeover to Ample
• IT Systems – switch to new ERP from Old System will necessitate this already
• Testing – mostly the same, but more outside product and some new equipment. As
new products are added, this could change greatly
• QA Staff – targeting need for a single new inspector, possibly more later
• QA Processes – primarily the same but will be utilized more
• Training – additional operational training, and possibly some small new QA training
• Internal QA Reporting – small changes, and a few new metrics
• Compliance Reporting – primarily the same
• Environmental & GPP – primarily the same, though physical space expansion into new
rooms or Building 50 could increase the scope of certain activities
• Controls & Traceability – with the addition of multiple DS product being accepted,
stored, given barcodes, packaged and shipped
• Document Retention – possibly some new ones, but more of existing ones required
• Data Integrity from Conversion – with moving off of Old System to new ERP, the
integrity of the data that will be transferred is of concern and will need verification
Operations Design 9 - Quality

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We created an example Reports page with ideas on their contents and
audience.
Operations Design 10 - Metrics & Reporting
Some metrics were to be calculated daily, some weekly and some
quarterly.
Report Freq. Contents (Examples) Purpose Preparer
Weekly Production Weekly
• Units shipped by SKU
• Units ordered, not shipped
• Efficiency
Overview of production for the week
and any issues that arose
Manager,
Operations
Inventory Balance Weekly
• Total inventory in MLs & $s
• Inventory levels by strain
• Shipments on order
Inventory balances at aggregated
and DS/variant level & in-transit lots
Manager,
Sourcing &
Inventory
Forecast Weekly
• Weekly forecast 12 weeks
• Monthly forecast 6 months
• Potential risks/shortfalls
Forecast for orders by DS, variant
and SKU for next six months
Manager,
Sourcing &
Inventory
Quality &
Compliance
Weekly
• Production defects
• Issues found, C/As initiated
• Testing results (new batches)
Show quality performance and
highlight any issues that could impact
operations.
Manager,
Quality
Orders, Shipping &
Revenue
Monthly
• Total orders shipped
• Categories by orders/dollars
• Revenue split by partners
Overview of total operation revenue,
and dollars and liters to provide
operations view.
Manager,
Operations
ClientCo & PartnerCo Monthly
• Taxes to be reimbursed
• Revenue share distribution
• Shipping costs to reimburse
Show key areas of performance, but
also show the dollar amounts
needing payment reconciliation.
Manager,
Operations
Monthly / Quarterly
Report
Monthly
Quarterly
Summary of all of the items
above, with most pertinent items
and issues presented
Overview for Executives and Boards,
possibly along with release to
investors (e.g., PartnerCo).
Manager,
Operations
Note: All reports are to be made available to ClientCo Team, Executives or PartnerCo/PartnerCo people interested.

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Finance was to be a major participant in this venture. We have
outlined specific areas where information is needed. (continued)
Operations Design 11 - Finance
Top Level Area Specific Area Rationale Data Needed (examples)
Expenses &
Cost Allocation
Quality – Returns
Cost of returns could require
reimbursement from LPs
Returns, size, cost and
frequency / lots
Quality - Recalls
Cost of recalls could require
reimbursement from LPs
Recall magnitude, root cause
and total costs (direct/indirect)
Testing Fees
For payment and to understand
cost impacts on inventory holdings
Testing costs, lots tested, size of
lots and labs used
MRO & Consumables Payment and profitability
Items purchased, unit cost,
volume, vendors and usage
Other Purchasing
Payment and profitability, and
identify major cost items not seen
All other purchasing of goods
and services, reasons/usage
Revenue &
Forecast
ClientCo Sales
Reimbursement from PartnerCo
and profitability (15% + Margin)
Total ClientCo product sales by
SKU and by province
RM Product Sales
and profitability (15%)
Total LP product sales by LP and
by SKU and province
RM Materials Bought
Total LP product sourced by
strain and all costs
PartnerCo Sales
Total PartnerCo product sales by
SKU and province
PartnerCo Bought
Total LP product sourced by
strain and all costs
White Label Sales
and profitability (10% Cost +15%)
Total White Label product sales
by SKU and province
Forecast
Allow finance to understand
potential future economic impact
All SKUs for all horizons
forecasted, dollars & volumes

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To better understand software requirements, we developed a
Functionality Needs report for the new ERP.
# Area / Module Functionality Needs (examples)
1 Supplier / Vendor Management
Manage Suppliers, history, terms, pricing & deliveries
Support payment of invoices
Shipping / Transportation companies (also in Finance)
2 Workflow / Production Control
Product scheduling development
Product workflow tracking
3 Forecasting
Demand Management
Forecasting material needs
Estimating availability, workloads and revenue
4 Inventory / Warehouse Management
Product receiving
Inventory balances and management
Support forecasting and drive replenishment
5 HR / Timekeeping
Time management / time keeping of staff
Payroll
Wages
6 Financials
Revenue sharing
Invoicing & A/R / credit card payments
Tax payments
7 Order & Customer Management
Invoicing / payment processing, Revenue Share calculations
Customer addresses
Customer order history
8 Quality
Quality management
Compliance history (documentation for Government)
Issue tracking and corrective action for resolutions
Operations Design 14 – IT Systems

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To properly launch and manage Packaging & Labeling, the following
needed to be completed.
• Analyze Label requirements with Old ERP functionality, map data fields.
• Ensure proper printer placements and hook-ups in right places in Production.
• Revise bulk labels to accommodate more in/out activity.
• Coordinate DS and PartnerCo packaging, sources and approval.
• Share Forecast with PartnerCo & DS firms, along with inventory reporting for packaging materials.
• Coordinate preliminary packaging shipment arrival and discuss cadence for future.
• Review pre-making boxes and storing in the Purchasing Room
• Set-up Vendors for all ClientCo packaging materials (assume already done).
• Stock ClientCo vials, caps, cartons, box bags and boxes.
• Review opportunity to pre-assemble cartons in store in Packaging Room.
• Review DS labels and packages to ensure ClientCo logo is present when needed.
• Create SKUs for DS packaging and decide how/where to track the inventory.
• Set-up storage areas for all DSs suppliers and their related packaging.
• Confirm interface between Old ERP and postage calculator and stamp printing.
• Prepare for Packaging Machine’s arrival next year, confirm capabilities.
• Review less expensive packaging options.
• Consider elimination of internal packaging for smaller lots.
Operations Design 15 - Packaging

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For any questions or clarifications, please feel to contact us.
Contact Details
Any questions, please contact:
Jay Martin
Chief Innovation, Inc.
Dallas, Texas
Please contact me via the LinkedIn profile below:
www.linkedin.com/in/jaymartindallas
www.chiefinnovation.com
(214) 520-8019
Operations Design Contact Information

Case Study - New Operations Plan & Design

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