Specialized Facilities

Specialized facilities have to begin construction 2-3 years before product launch in order to manufacture on time. Late changes in the process technology to produce an ingredient require changes in the facility itself, resulting in increased costs and production delays. If the products are cancelled, the entire facility has to be retrofitted at a comparable cost of producing a new facility. Since the facilities are designed to produce a select number of products for their entire production lifetime (and cannot accommodate other products) there is an abundance of excess capacity.

Flexible facilities, although considerably more costly than specialized facilities, do not require product design processes to be finalized before construction and are able to accommodate new products with minimal delay. If products are cancelled, the facility can accommodate manufacturing other products (thus capacity is not wasted). Flexible facilities thus afford last minute changes in the manufacturing process without costly delays during a product’s most crucial sales period (the initial two years). Further, products can make it to market one year earlier if produced in a flexible facility.

The cost of building a flexible facility is nearly five times as much as a specialized facility and costs 50% more to operate. Flexible facilities do not achieve the same cost performance as specialized facilities for blockbuster products with large production runs (exhibit 1). Rather, specialized facilities minimize the risks

Specialized facilities have to begin construction 2-3 years before product launch in order to manufacture on time. Late changes in the process technology to produce an ingredient require changes in the facility itself, resulting in increased costs and production delays. If the products are cancelled, the entire facility has to be retrofitted at a comparable cost of producing a new facility. Since the facilities are designed to produce a select number of products for their entire production lifetime (and cannot accommodate other products) there is an abundance of excess capacity.

Flexible facilities, although considerably more costly than specialized facilities, do not require product design processes to be finalized before construction and are able