Risk Management

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The preparation of raw materials takes one day, while the fermentation, chemical synthesis, and extraction take four days. Formulation refers to the combination of the various ingredients to produce a product; it takes three days. The packaging takes one day. Bottlenecks refer to the aspects of production that may lead to a reduced amount or quality of products than the one anticipated. In the above process, the shortage of raw materials will have a direct effect on the amount and quality of the final product. The number of intermediates also dictate the quality of the end product, which is to be packaged. The chemical synthesis, extraction, and fermentation should also be done using the correct procedures.

Question 2

The product life cycle refers to the relationship between the sales of a product and time. The sales start to rise gradually from the development to the introduction phases, then increases exponentially throughout the growth phase(Strategos, 2018). At the development, introduction, and growth phases, the operating costs are lower than the revenue from the products. The production volumes are high, while the risks are low, hence, high profits. At the maturity stage, the sales are at an optimum level, and the production volume is at its highest. The company also starts to experience risks. The last stage is called the decline, where the sales reduce. There is limited demand for the products, which results in low production volumes. The difference between the revenue and the operating cost becomes small and there are increased risks in the organization.

Question 3

Specialized Facility


i. The specialized facility has a high utilization rate, i.e., 80%, which minimized energy wastage.

ii. The facility has a high production capacity. The regular and maximum amounts are 16,000kg and 24,000kg per year respectively(Malvesti, 1993).

iii. A specialized facility is cheap to construct and operate, i.e., $37.5 million and $6.8 million every year(Malvesti, 1993).


i. The facility has a high-risk factor compared to a flexible one. If one product is not successful in the market, the company has to retrofit some sections of the facility to manufacture another product. The company has to start the design and concept phases three months before designing the final manufacturing processes. In case this does not happen, the product launch will be delayed by months or weeks(Malvesti, 1993).

Flexible Facility


i. The flexible plant has a low lead time regarding the manufacturing of new products as it takes the construction away from the critical path. The plant can accommodate almost every new product without any delays.

ii. The plant also offers reduced risks in case of production failure of any of the three products. The unutilized capacity can be used by other processes(Malvesti, 1993).


i. The flexible facility is expensive to construct as it needs more rigs than the specialized capacity, i.e., $50m for one flexible rig compared to $25m for a specialized rig. The company will need three flexible rigs, which brings the cost to 4150 million(Malvesti, 1993). The lining of the tanks in a flexible plant (glass) is also more expensive than that of a specialized plant (stainless steel).

ii. Additionally, the flexible plant has a low utilization rate (65%), which leads to wastage of energy(Malvesti, 1993).

iii. Flexible facilities have low production capacities, i.e., a maximum of 14,625kg per year.

iv. A flexible facility has a high operating cost, i.e., $9.48 every year(Malvesti, 1993).

Question 4

As a part of the management team, I would choose the flexible facility over the specialized one. The former has a high operating cost and initial capital. However, the specialized facility has a high-risk factor, which is bad for business. If one of the products is not received well in the market, then the production can be delayed by several weeks or months(Malvesti, 1993). The result is the lack of confidence in the company’s products by the customers. The organization’s competitors will take advantage of this supply gap and enhance their marketing strategies to gain the loyalty of Eli Lilly’s customer base. Hence, the flexible facility is the better option as it provides the firm with a risk management strategy.

Question 5

The company’s profitability has improved since 1992. Initially, the total sales amounted to $6.2 billion while the figure for 2017 is $22.871 billion(Statista, 2017). There have been fluctuations over the years since 2007. However, all the figures are higher than the revenue generated in 1992.

Eli Lilly’s market share in the pharmaceutical industry was 2.5% and occupied the number nine spot globally(Malvesti, 1993). Today, the organization has reduced its market share in the pharmaceutical industry, in spite of the increased revenue. The top three companies with the largest market shares and their revenue collection in 2018 are Pfizer ($52.54 b), Roche ($44.36b), and Sanofi ($36.66 b)(Ellis, 2018).

Eli Lilly has improved its operation design since 1992. The company earned the Facility of the Year Awards (FOYA) in 2017 due to its incorporation of novel manufacturing techniques in its new and existing facilities, as well as the application of science-based solutions to various challenges. The company made technological advancement in continuous encapsulation, continuous coating, true real-time release, etc.(ISPO, 2017).


Ellis, M. (2018). Who are the Top 10 Pharmaceutical Companies in the World?

Retrieved from Proclinical: https://www.proclinical.com/blogs/2018-3/the-top-10-pharmaceutical-companies-in-the-world-2018

ISPO. (2017). Meet Eli Lilly and Company – 2017 FOYA Process Innovation Winner. Retrieved from ISPO: https://ispe.org/ispeak/meet-eli-lilly-company-2017-foya-process-innovation

Malvesti, J. (1993). Eli Lilly and Company: The Flexible Facility Decision (1993). Harvard Business School.

Statista. (2017). Revenue of Eli Lilly and Company from 2007 to 2017 (in a million U.S. dollars). Retrieved from Statista: https://www.statista.com/statistics/266590/pharmaceutical-company-eli-lilly-revenue-since-2007/

Strategos. (2018). Product Life Cycles. Retrieved from Strategos: http://www.strategosinc.com/articles/strategy/product_life_cycles.htm

January 19, 2024

Business Economics

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