industry analysis pharmaceutical manufacturing of brand name drugs group 45a leia eldreth- senior,...
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INDUSTRY ANALYSISPHARMACEUTICAL MANUFACTURING OF
BRAND NAME DRUGS
Group 45A
Leia Eldreth- Senior, Human Resources, May 2011
David Watson- Senior, Entrepreneurship, May 2011
Deniece McCoy- Senior, Finance, May 2011
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PHARMACEUTICAL MANUFACTURING OF BRAND NAME DRUGS
Merck & Co.
•Traded on New York Stock Exchange (MRK)
•Headquarters Located in White House Station, NJ
Pfizer Inc.
•Traded on New York Stock Exchange (PFE)
•Headquarters Located in New York, NY
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INDUSTRY KEY SUCCESS FACTORS
• Manufacturing Efficiency
• Economies of Scale
• Inventory Turnover
Strength Analysis Scale Used: 1-5 1- Weak 5- Strong
Based on 2010 Data
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• Allows companies to produce more product efficiently
• Critical deciding factor in industry competition
• Measured by: COGS/ Sales Revenue
• Lower is better for cost based strategies
MANUFACTURING EFFICIENCY
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MANUFACTURING EFFICIENCYCOGS/ SALES REVENUE
Merck & Co.:
Manufacturing Efficiency:
$11,015,000/ $45,987,000 = .2
Strength Analysis: 3
Pfizer Inc.:
Manufacturing efficiency:
$13,196,000/ $67,809,000 = .19
Strength Analysis: 3
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ECONOMIES OF SCALE
• Allows companies to decrease the internal cost of operation by reducing the cost per unit.
• Result of increased production
• Measured by: Costs/ Total Assets
• Lower number is better if company has a growth strategy.
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ECONOMIES OF SCALE:COSTS/ TOTAL ASSETS
Merck & Co.:
Economies of Scale:
$11,015,000/ $105,781,000 = .104
Strength Analysis: 1
Pfizer Inc. :
Economies of Scale:
$13,196,000/ $195,014,000= .068
Strength Analysis: 5
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INVENTORY TURNOVER• A measure of how often the company sells and
replaces its inventory. It is the ratio of annual cost of sales to the latest inventory.
• Affects both supply chain and value chain.
• Measured by: Revenue/ average inventory
• Higher inventory turnover is better if industry has product innovation
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INVENTORY TURNOVER REVENUE/ AVERAGE INVENTORY
Merck & Co.:
Inventory Turnover:
$45,987,000 / $6,961,000 = 6.6
Strength assessment: 3
Pfizer Inc.:
Inventory Turnover:
$67,809,000 / $10,404,000 = 6.5
Strength assessment: 3
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OVERALL STRENGTH ASSESSMENT
KSF Merck & Co. Pfizer Inc.
Manufacturing Efficiency
3 3
Economies of Scale
1 5
Inventory Turnover
3 3
Totals: 7 11
Average: 2.33 3.66
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PROTECTION FROM HIGH- POWER THREATS
Manufacturing Efficiency:
•Determines capability for production to supply the demand
•Greater efficiency, higher profits with lower COGS
• Higher top line revenue
•Better efficiency leads to a competitive advantage with the ability
to allocate funds elsewhere
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PROTECTION FROM HIGH- POWER THREATS
Economies of Scale:
•Profit = [(QUANTITY x AVERAGE SALES PRICE)] – COSTS
•EOS allows reduction of internal costs without reducing quality
of product
•Cost per unit decreases as production increases
•Protection: High power rival forces drive average price down,
lower internal costs of production allow for lower prices to be
passed onto customers without reducing profits.
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SOURCES:
"Merck & Co, Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/enterprise/default.aspx?entid=1208>.
"Pfizer Inc. - Company Report US." IBIS World, n.d. Web. 10 Apr. 2011. <http://www.ibisworld.com/enterprise/financialsannual.aspx?entid=1464>.