Nuclear Medicine Inc.

At the end of World War II, the nuclear reactor facilities developed for the Manhattan Project began
producing radioactive isotopes for medical application, mostly in diagnostic procedures. Today, about 13
million nuclear medicine procedures are performed each year in United States. These procedures are
performed in hospitals, some of which have their own particle accelerators to produce
radiopharmaceuticals onsite, but most providers receive nuclear medicine from regional radio pharmacies
located within a 100-mile radius. This proximity is primarily due to the short half-lives' of radioactive
isotopes which require immediate and rapid distribution upon production. As a result of growing demand,
companies in the $2 billion North American nuclear medicine market manufacture and distribute
radiopharmaceuticals to either regional radio pharmacies or directly to hospitals.

Eyeing a piece of $2 billion market a large Indian pharmaceutical company henceforth Nuclear Inc., which
was very successful in the generics market acquired a North American manufacturer of nuclear medicines.
As a part of post-merger integration and operations improvement the corporate improvement team was
engaged to identify the cost avoidance and elimination opportunities. Rahul was a new member in the
corporate improvement team and was tasked to undertake the assignment to identify improvement
opportunities at Nuclear Inc.

Rahul visited the manufacturing facility that was based in Montreal. His contact at the facility was the head
of production John Nash. Rahul collected following information on the production from John:

The Canadian facility manufactured nuclear medicines from different radioactive isotopes1 (primarily Iodine)
catering to the entire North American geography. Its primary customers were radio- pharmacies and
diagnostics hospitals and centers across North America including Mexico.

The revenue distribution between the major product group by profit centers is given in the Fig-1 below.
Sales data for FY10-11 contains only first five 5 months of data

FY FY FY
Proft Center Name FY08-09 FY09-10 FY10-11
Non Radioactive $6,485,438 $6,002,087 $2,935,636
Radioactive $18,671,805 $19,105,175 $8,375,014
Services $240,000
$25,157,243 $25,107,262 $11,550,650
Figure 1: Revenue (FY10-11 revenue is only for 5 months)

1
Radio isotope products have a fixed decay rate, therefore they are considered as fixed lifetime products. An
exponential decay inventory model has a following differential equation,
𝑑𝐼(𝑡)
+ 𝜃𝐼(𝑡) = −𝑓(𝑡),
𝑑(𝑡)
Where 𝜃 is a constant decay rate,
I (t) the inventory level at time t and, f(t) is the demand rate at time t
For Iodine the half-life is 8.04 days.

Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah
A further breakup of Sales by Product Category is given in Figure 2.
Product Category FY08-09 FY09-10 FY10-11
Iodine Products 16,067,492 17,240,988 7,248,241
L Kits 6,421,587 5,912,559 2,449,735
I-131 Therapeutic 1,107,877 1,084,875 478,656
Packing 910,148 358,063 1,093,726
Other Radioactive 458,516 313,743 132,736
I-131 Diagnostic 115,300 120,141 44,578
3rd Party 68,510 76,893 44,066
Non Radioactive 7,812 58,912
Figure 2: Revenue by Product category

The highest contribution of the sales was due to Iodine Products. Iodine products including I-131
Therapeutic and I-131 Diagnostic had a common raw material I-131 supplied by the government owned
nuclear reactors. Nuclear Inc. sourced its raw isotope from 2 suppliers MDS from Canada and NTP from
South Africa.

Nuclear Inc. supplies to 155 customers worldwide with majority of the sales coming from North America.
Since Iodine was the biggest revenue generator, Rahul decided to further investigate iodine value chain. As
a first step he created a value stream map 2 for the Iodine to identify the non-value added activities in the
flow of the isotope product from the time it was shipped from the supplier to the time it was transformed and
shipped to the customer.

The Value stream mapped (ref Fig2) following processes

1. Material inbound (receiving) process

2. Incoming Quality inspection and preparation process
3. Stage wise production
4. Outgoing quality and dispatch process
5. Customer Service and order management process
6. Inbound and outbound logistics process

2
Value stream map is a lean concept based on lean enterprise model. It has two Meta principles 1)
responsiveness to change, 2) Waste Minimization. A value stream map is a basis of initiating and
sustaining the lean transformation. The value stream map brings the clarity on the different steps or
activities in the process and provides an end to end perspective on the various issues in the stream, its
measurement and communicates the necessary information in a diagrammatic form
Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah
Figure 3: Iodine Value Stream Map

Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah
Usage

Radioactive Iodine (I-131) is used in nuclear medicine therapeutically and diagnostically. Major uses of I-
131 include treatment of hyperthyroidism and thyroid cancer. It is also used as a radioactive label for
imaging and treating pheochromocytoma and neuroblastomo.

Demand

Rahul analyzed the sales data and captured the weekly demand of the Iodine Based Isotopes in the Fig-4
below.
Q1 Actual
Week Calibration Days 15 16 17 18 19 20 21 22 23 24 25 26
Hicon Kit
502880 5 97000.0 90750.0 79750.0 97250.0 95500.0 92750.0 95750.0 90000.0 89250.0 94000.0 95500.0 90500.0
I-131 CAP DIAGNOSTIC
502460 6 22.5 36.6 20.5 27.5 34.1 34.5 30.3 31.4 26.9 34.0 32.9 33.2
502461 5 101.0 101.0 103.0 101.0 102.5 101.0 102.5 101.0 102.5 101.0 102.5
I-131 CAP THERAPEUTIC
502440 3 7829.1 9401.8 6819.0 7730.4 7471.7 8451.6 5929.4 5763.5 8412.9 7227.7 7091.7 5238.0
502441 1 578.9 655.0 837.6 231.3 711.0 614.5 669.6 444.7 885.4 380.4 1545.5 640.1
I-131 SOLUTION DIAGNOSTIC ORAL
502520 3 15.0 14.0 13.0 14.0 20.0 14.0 6.0 4.0 6.0 14.0 7.0
I-131 SOLUTION THERAPEUTIC ORAL
502480 4 4997.6 4135.6 3566.2 4775.2 3681.0 3425.0 3352.9 2842.0 4021.3 4708.8 4063.9 4667.2
MIBG I-131 INJECTION THERAPEUTIC
502700 2 466.5 207.2 33.5 970.0 380.5 389.1 304.4 530.5 829.9 821.9 246.2
502703 1 540.0 99.0 650.0 1190.0 150.0 955.0
Figure 4: Demand

Due to the perishable nature of the medicine additional 3calibration was provided to the customers
depending on the SKU. The calibration provided to the customer is provided in the calibration day’s column
above.

Supply

The weekly supply history from the two suppliers given in the table below
Week 15 16 17 18 19 20 21 22 23 24 25 26
MDS 30 30 30 30 30 30 30 30 30 30 30 30
NTP 115 120 120 185 100 122 120 120 120 120 110
Total 145 150 150 30 215 130 152 150 150 150 150 140
Figure 5: Supply

The two suppliers provided calibration over and above the contract quantity as follows
MDS- 1 day @ $ 445 per curie
NTP – 7 days @ $ 227 per curie

3
Calibration
Calibration is industry term used to provide an additional radioactivity level starting from the receipt or dispatch date
and time. The commercial contracts contains the days of calibration and radioactivity in units (Curies, milliCuries,
MBq, etc.). The calibration days provide additional activity above the contracted quantity.

Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah
John gave an example to make the calibration more clear. Suppose you contracted 30 curie with the
supplier NTP and MDS, NTP will provide additional activity of 7 days and MDS will provide additional
activity of 1 day. In other words instead of 30 curies you will receive (30/0.546902~54.85 curies) from NTP
and (30/0.917399~32.70 curies) from MDS

The calibration table for 15 days is given below

DAY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
FACTOR 0.917399 0.841622 0.772103 0.708327 0.649819 0.596143 0.546902 0.501727 0.460284 0.422265 0.387385 0.355387 0.326032 0.299101 0.274395
Figure 6: Calibration

John said that he wasn’t sure he was using the raw material efficiently. The production was planned for the
5 days of the week. Due to radiation exposure limits he could not produce more than 35000 mCi per day.

Further his cost of temporary workforce ($/mCi) of each SKU was given in the Fig-7 below

502880 502460 502461 502440 502441 502520 502480 502700 502703

0.93 0.82 0.33 0.81 0.84 0.73 0.79 0.43 0.32
Figure 7: Production Cost

Due to labor market shortage in Canada, the cost increased by 5% every day and was highest on Friday.

Johns had budgeted a total of $ 20,000 as the cost for production of these SKU’s

John also shared his distribution of production over 2 weeks (Fig-8). Typically he used to schedule
production over 2 weeks from the receipt of raw material.

Figure 8: Production Schedule

John mentioned that the demand in the past was not very stable so as a practice they have consumed the
raw material over 2 weeks.
Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah
Premium

As the procedures were scheduled on Saturday’s and Sundays, there was a premium of 1 to 4 % that
Nuclear Inc. could receive if shipped on the stipulated days. John had budgeted premium earnings to be
greater than $ 30000 per week

Customer Incentive DAY 1 DAY 2 DAY 3 DAY 4 DAY 5

% Incentive on Shipping Days 0 0.01 0.02 0.03 0.04

Initial Analysis.

Based on the data shared by John, Rahul made an initial analysis of the demand pattern and found that
demand was fairly stationary with few large customers. He believed it was possible to consume the raw
material within the same week and reduce the order quantity with the supplier.

Rahul decided that there was a business case to create an optimal weekly production plan meeting the
various constraints and the objectives of minimizing raw material consumption and production costs.

Prepared by Prashant Nagpure for case analysis and discussion for Advanced Analysis and Data Science
Course at IMT Ghaziabad in collaboration with Dr. Mrinalini Shah