Critical Thinking –SCMS Case 1 Part 1· Whatare the objectives? – The objectives are to streamline the R&D(research and development) of pharmecutical products. That will in returnreduce costs and increase the value and sales. Also, to determine whichprojects will be allocated large and small budgets.· Whatare the constraints? – Theconstraints are the risks that are involved in risky drug discovery anddevelopment.
The longer it takes for adrug to develop, the higher the development costs are. As well as higher returnon investments and a larger amount of generic competitors. In thepharmaceutical industry another constraint would be competition between othername-brand drugs. Whatare the risks involved? – Thelargest risk is that not all drugs produced will return a profit. A large partof the development cost is spent on drugs that have a low chance of making itto the market. Also, another risk could be that drugs that do make it to themarket may not make back the costs it took to produce the drug. As the case stated,roughly only 30% of drugs that make it to the market are successful enough torecover development cost. .
· Whatare your alternatives?- The alternatives are to obtain idealresearch and types of development strategies that are the most cost efficient,improve sales, and reduce needless costs. Also, the company can choose to spendmoney on other more profitable projects like NME or LCM projects.· Whatinformation is required for project portfolio management at XYZ and how can itbe collected? – The information required would be theresults produced from research and development projects. Specifically the costsof each project, the likelihood of technical project success, expected year ofdrug introduction, cost it takes to introduce drug to market, return oninvestment, and the amount of market risk. Part 2 By assessing the amount of risk pertaining to the project.
Also,by figuring out the likelihood of success and failure the project wouldproduce. You would do that by subtracting the net sale of the projects totalcost and calculating the net present value (NPV). Other information I wouldcollect would be previous trends of my competitors, how they failed, what theysucceeded at and other failures my competitor encountered. By researching mycompetitor I can learn from their mistakes without having the monetary fallbackthey had.
My competitor’s bottom line is something I would also pay a lot ofattention to. I would take into consideration the launching costs they incurredas well as their net sales. The tools I would use would to project the value ofthe project would be linear programming and project forecasting. These twotools would help me get a better picture of the future potential outcome of theproject.
Part 3 The risk pertaining to Project 1 can be figured out by researchingmarket risk and rate of success/failure of previous projects similar to Project1. Also by looking at the success rate of similar projects you can gainvaluable information about the project’s market adaption and potential success.A quantitative tool that would be beneficial would be Forecasting. The onlycaveat to forecasting is that forecasting requires a lot of information to beaccurate. So, Project 1 would need to have many averages to be used inforecasting. Part 4Withnext year’s R budget for the oncology area beingreduced to $50 million I would decide to fund the project in the oncologydepartment with the highest return on investment. Because funds have been cut drasticallyin this department it is very important to support a project that hashistorically been successful. I made that decision because the oncologydepartment needs to recoup some of the losses occurred from the cut in funding,the best way to do that is to support the most successful projects to date.
MNEblockbuster projects have the potential to recoup some of the losses over LCMprojects. I would put a hold on projects that have a historical low probabilityof success and that are in the first stage “basic research” because this stagecosts 30-50 million. ROI (Return on investment) would be a great basis todetermine which projects should continue to be funded and which projects shouldbe put on hold. I think that the deterministic decision model would be the bestquantitative tool to determine whi