Case Study - New Operations Plan & Design (Full version)

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Jay Martin September 2022 Q-Operations Design & Launch.ppt
Case Study
New Operations Model
Design and Planning
(Life Sciences)

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A Canadian pharmaceutical & over-the-counter drug new venture.
Operations Design The Client

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A pharmaceutical production facility was acquired by established
Canadian investors for a multi-channel business venture.
• Client had purchased a large facility and had already been producing and testing
production of new products and its production capabilities.
• Multiple partners with expertise and branded products had signed letters of intent
to create partnerships. An American OTC partner was going to co-locate inside.
• The client company had no experience in order fulfillment (packaging, shipping)
for retail pharmacies nor in mail order delivery and e-commerce fulfillment.
• The majority of the management team was new, and the CEO was a former Retail
Pharmacy CEO who had been hired a few months prior.
• Much of the facility remained unfinished, with a variety of decisions related to
space allocation still needing to be made.
• A new Chief Operating Officer was being recruited to run the operations and
receive the hand-off from the consultant (Chief Innovation) with how to proceed.
• A variety of rough agreements (Letters of Intent) had been signed, but the details
and legal agreements had not been agreed upon, nor actually understood.
Our Operations Design was part of a larger assignment involving the
joint ventures, contract finalization and private labeling.
Operations Design Situation

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The Assignment involved numerous work streams. The critical paths
related to the Operations Design & Plan are outlined below.
This presentation focuses on the details (D) of the Operations Design
and is a subset of the total work completed for the Client.
Operations Design Assignment
Finalize
Partnerships &
Legal Agreements
• Conversion of the LOIs into legal contracts
• Finalization of contracts with the client’s law firm and
both partner General Counsels and Chief Executives
• Understand the operational and financial implications
Financial Models,
Risk Assessment &
Scenario Planning
• Create assumptions (e.g., regulatory, taxes, market)
• Complete a risk assessment with mitigation plans
• Identify likely scenarios and financial implications
• Build a dynamic, comprehensive revenue/cost model
Support Board of
Directors Approval
• Description of overall concept and joint ventures
• Demonstrate strategic fit and competitor responses
• Detail the different options, scenarios & financials
• Outline the exits/off-ramps for the different initiatives
Operations Design
& Implementation
Planning
• Identify all the needed components to execute
• Detail out sub-areas and questions to be answered
• Find or create all information to complete the design
• Prepare an implementation plan with priorities
A
B
C
D

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Though our work streams had significant overlap, below are the
major activities.
Operations Design Approach – Four Work Streams
A B C D
Partnerships and
Legal Agreements
Financial Models, Risk
Assessment and
Scenario Planning
Board of Director
Approval Support
Operation Design and
Implementation
Planning
• Review Letters of
Intent and related
documents
• Review impacts of the
financial and
operational implications
• Discuss with partner
CEOs and confirm
objectives of each
• Draft legal contracts
• Review legal contracts
with GCs and outside
counsel from all parties
• Manage the focus and
work of the primary
client outside counsel
• Present financial
models showing final
agreed upon values
• Finalize and sign all
contracts
• Develop dynamic (i.e.
users can alter it)
financial model(s)
related to: capital
requirements, profit
sharing, capacity,
operating costs, taxes
• Review profit sharing
model and
assumptions with
partner CEOs
• Complete a risk
assessment of each
venture, including risk
categories, likelihoods
and mitigation
strategies
• Create and model
different likely
scenarios and plan our
reaction to each
• Understand Board
concerns and
expectations of what
they would like to see
• Create a presentation
deck for Board Meeting
• Prepare any expected
resistance with
questions & concerns,
and our responses
• Understand any open
questions or resistance
• Research and confirm
(or revise) areas
• Re-present or send
• Obtain formal approval
for go ahead
• Receive capital
authorization release
• Inform partners, begin
implementation
• Identify all the different
elements to create the
Operations Design
• Review leading
practices or industry
specifics to understand
each functional area
• Assess existing SOPs
and existing operations
to ensure transition
• Build out all sections of
the plan to ensure it is
comprehensive
• Review with new COO
designate and explain
• Finalize plan to
incorporate needed
changes
• Deliver final plan to
COO for timeline and
implementation needs

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The Analysis and Results sections are presented together as they were
done in parallel.
Operations Design Analysis & Results
• The main deliverable of this part of the client work was a Report on how to structure
and launch the new operation. Analysis and Results are presented in one section.
• The Analysis work of this engagement included:
– Identifying the preliminary areas required and building out what was needed.
– Review the components of the Financial Model and Partnership agreements.
– Review existing operations, documentation and software capabilities.
– Discussed with current and incoming (e.g., new COO) executives.
– Complete layout the structure of the deck for the Operations Model & Design.
• The Results portion was the completion of the information included in the slides of
the deck, as well as final fine tuning of the content of each slide.
• The Final Report has over 100 pages of details. This Case Study has both a long
version (to support others doing similar projects) and a short version (show a brief
overview of Chief Innovation’s work and capability’s). This is the Long version.
This venture was unique and complicated and was in the national news numerous times. UOMs (volumes and
weights) and DS references in the slides will appear confusing given the ‘scrubbing’ of the client data. All data is
illustrative, and in any conversations we will be able to disclose specifics to help explain the client’s situation.

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The Operations Design Plan had 16 sections, which included the
implementation plan developed with the incoming COO.
The remaining eight section descriptions are on the following page.
Operations Design Approach - Report Sections
Section Section Name Contents Description
1 Contracts & Agreement
A summary of the different agreements and contracts was in
this section, as there were multiple with different partners.
2 Launch Planning
Implementation items were categorized as High, Medium and
Low, and totaled over 100 different actions with assignments.
3 Partners
Specific actions and coordination for each of the partners was
detailed out to ensure a successful implementation.
4 Products
Everything related to the different products for both medical
and over-the-counter products and composition.
5 People
All areas related to staff, management, support, and reporting,
including new job descriptions and temp support.
6 Production Control
All facets for Production Control, Forecasting and Inventory
Planning & Management were all included in this section.
7 Processes
Top level processes planned for all fulfillment operations. The
final processes would be developed with the new COO.
8 SOPs
Standard Operating Procedures had already been developed
for most areas and were audited. This section reflected those.

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The Operations Design Plan had 16 sections, which included the
implementation plan developed with the incoming COO.
This document was shared with the executives across all the partner
companies and was critical for its execution.
Section Section Name Contents Description
9 Quality
All of the requirements and places inside the processes where
there will be Quality Control & Quality Assurance steps.
10 Metrics & Reporting
All measurement and reporting to all parties, including methods
and rationale as to ‘why’ it will be provided.
11 Finance
Details of all areas of accounting, particularly payment to and
from outside entities.
12 Facility
Concerns and accommodations for different operational areas,
including collocated operations, inside the facility.
13 Product Security
Identification and mitigation of all places in the process or
locations in the facility where product would be ‘lost’.
14 IT Systems
All IT needs from timecards, to issue tracking and billing.
Comprehensive IT systems (planned) and requirements.
15 Packaging Packaging materials and label details and issues.
16 Transportation
Parcel and bulk carrier options and contact information for
service providers along with details and rates.
Operations Design Approach - Report Sections (continued)

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The legal agreement highlights included:
• The agreement and renewal timing in years.
• Exclusivity agreement for PartnerCo for distribution inside of Canada.
• Supply agreement for the molecule raw material with mark-up established.
• ClientCo ‘may’ be asked to purchase PartnerCo products, reimbursed at 18%.
• Wholesale pricing to ClientCo for White Label products.
• Specialty Products exclusions.
• Profit sharing payments from PartnerCo to ClientCo on all revenue after taxes.
• Packaging requirements, supplier and payment.
• Reimbursement for (or provides) packaging for all Supplier branded products.
• SKUs to be supported by ClientCo and specifics for storage.
• Who/how all shipping, taxes on wholesale and testing costs will be paid.
• Responsibility for maintaining the inventory and all associated costs.
• PartnerCo will pay for or reimburse all taxes, including sales, excise, CH and SRF.
• Upfront investment by PartnerCo in the form of a debenture agreement.
Given the assumptions, an estimate for overall profitability was made.
Operations Design 1 - Contracts & Agreements

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Below is a summary of “How The Client Will Get Paid” for the venture.
Multiple companies, a variety of product streams and numerous
relationships made this a complicated venture.
($.3/ml) - Cost 20%
15% Markup 20%
($.3/ml) - Cost 12% Markup 20%
15% Markup 20%
White Label
Margin Sourcing Cost Post Tax Revenue
Total Cost
PartnerCo
ClientCo
Suppliers
eComm
Operations Design 1 - Contracts & Agreements

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The Implementation Launch Plan provided a three-tier list of more
than 100 activities.
1. Finance – Confirm taxes and how & when paid, and by who (e.g., ClientCo or PartnerCo)
2. Transportation – Schedule Canada Post to come every day for a pick-up (believe $3 charge!)
3. Transportation – run some parcel tests to make sure it runs smoothly
4. Transportation – test the same day delivery option
5. Space – confirm Bldg 50 is where we will move to when we outgrow Packaging Room
6. Space – fit out Bldg 50 for lighting, HVAC and Security in preparation for a move
7. Space – get tables, racks, totes, mats and an other supporting materials for Production
8. IT – figure out how we can do Vendor Management with Raw Material suppliers and their delivery
9. IT – complete an in-depth assessment of ERP’s functional capabilities with our own requirements
10. Packaging – stock up on Packaging materials, arrange replenishment if going to continue using
11. Packaging – list all the Packaging material options with cost, lead time, expedite fees, shipping, etc.
12. People – start searching for the ‘Packaging Machine expert’ (he is not in the people plan)
13. Product – visit local facilities that have Packaging Machines just to understand them
14. Packaging – ask around industry to find out how people are packaging their bags similar to ours
15. Packaging – review ‘fit’ of Packaging machine to task – Jay’s concern: waste of product on floor
16. PartnerCo – ask them can only two Raw Material suppliers be shown on their website?
17. Process – do dry run on floor with process in deck to find additions and errors
18. Contract – review Jay’s contract issues, ensure they were resolved or we are prepared for them
Operations Design 2 - Launch Planning

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Conference calls were outlined with the major topics in advance.
Operations Design 3 - Partner Communication
# Topics Description
1 Last Call Summary / Open Issues Review of last week’s open issues and status of resolution.
2 Launch Planning Status Discussion of the Launch Plan, status and items needing to be completed.
3 Finance & Accounting All subjects regarding finance, payments and transaction details.
4 Reporting Performance reporting and discussions across multiple areas.
5 Inventory Review of inventory, changes and possible concerns and issues.
6 Forecasting In-depth conversation of all areas related to forecasting.
7 Staffing (Core) or Facility Changes Any new people or projected new hires for key staff involved in the venture.
8 Raw Material Suppliers All issues related to current and future Raw Material Suppliers.
9 Quality Quality issues and problems that need to be shared with PartnerCo.
10 Government, Compliance, Licenses Any issues regarding changes with respect to government.
11 Packaging Discussion of packaging, inventory, shipments and any approvals.
12 Transportation & Carriers Any open issues or changes with respect to delivery couriers.
13 IT & Website Issues IT system and coordination issues. Any issues on any of the websites.
14 White Label & Specialty Discussions on current or future initiatives.
15 Competitors Updates on competitors related to products, marketing or alliances.

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The outlines were detailed with topic information and timing.
# Topics Questions / Focus Areas Weekly Monthly
1
Last Call
Summary /
Open Issues
• Open with a Summary of the prior weeks call
• Issues identified on previous calls and their status
• Overview of subjects to discuss on current call
• Request for participants to add any that were missed
Always
2
Launch
Planning Status
• Review of open launch planning items and status
• Discussion of upcoming items
• Overall review of performance to expected plan
• Impacts of known, expected or potential issues
Always
(first 3-4
months)
3
Finance &
Accounting
• Review of payment status and any issues identified
• Discussion of payments to Suppliers
• Any required financial information needed
• Monthly / quarterly numbers for financial disclosure
• Confirmation of delivery of needed documentation
As needed Primary
4 Reporting
• Discuss general metrics and performance
• Invite questions on additional areas not covered
• Review presented performance reporting
• For challenge areas, discuss what is being done
• Review any goals or commitments and progress
Some All
5 Inventory
• Review inventory balances for all SKUs
• Discuss total costs and vision to reduce/increase
• Discuss DS batch yields
• Discuss inbound DS shipments or purchases
• Review safety stock / reorder points and rationale
Always
Operations Design 3 - Partner Communication

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We identified major ‘Product’ areas of concern that arise when
working with Drug Substance suppliers.
Area Subject Management Item
Contracts
Drug Substance Producer List New DS suppliers to be added or existing ones to be eliminated?
Contract Ownership
Who or which contract will ClientCo use to acquire product?
Status if a new contract is being created or negotiated.
Inventory
Drug Substance Which DS formulations do we intend to carry? Adding any?
Package Sizes What packaging sizes will we have for each product?
SKUs Which do we want to add, delete or promote?
Packaging Materials Do we have enough of the right packaging material for our needs?
Target Inventory Levels For each DS & packaging material SKU, what are our targets?
Lead-times Lead-times for different strains from each DS, yield visibility.
Aging Concerns Review of existing stock for slow moving or at risk product.
Quality
Quality Issues Addressing any incoming quality or other problems with DS firms.
COAs Deciding when we need COAs and ensuring we receive them.
Testing Conducting testing and deciding which Labs we approve of.
Commercial
Volumes and Orders Understand volumes on DS and ordering details.
Price Changes Discuss and DS price changes and potential impacts.
Prices Paid Track batches, prices paid and inventory of each batch held.
FIFO for Reimbursement Reimbursement from PartnerCo will be for FIFO by batch price.
Operations Design 4 - Product

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We identified what the major people processes and concerns were.
• Finding / hiring people (ClientCo Human Resources or Recruiters)
• Qualifying and background checks (ClientCo Human Resources or Temp Services)
• Onboarding processes (introductions, safety, our process, rules, confidentiality)
• Training (should be straightforward, mostly GPP and process related)
• Rules – need to review what we have, and think of anything new (ask HR)
• Operations processes (Jay & VP of Mfg started, new COO & team will finalize)
• Performance Management (don’t spend a lot of time for floor staff, teach or cut them)
• Breaks, lunches, bathroom, water (bottles in room), personal items storage, PPE
• Terminating (for Temps, just walk them out or tell them not to come back next day)
While many of these processes were obvious, the onboarding and
training process items needed to be outlined in detail.
Operations Design 5 - People

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The major organizational roles and requirements were identified.
These roles included starting staff and staff that could be hired later.
Qty Role Duties Profile Ideas
Part-
time* Manager, Operations
Overall leader for operations. Everyone
reports to him/her. Primarily focused on
Production and oversight of rest of staff.
Vision was 8-15 years exp, maybe ex-
military or past supervisory position.
Prefer a degree. Hands on personality.
1
Manager, Sourcing &
Inventory Management
Manage DSs, contracts, shipments,
packaging needs and sources. Run
forecasting process, balance inventory.
APICS certified or professional with
Inventory and/or Sourcing. Great with
Excel and Math. Well organized. +10 Yrs.
1 Supervisor / Lead
Be floor lead over the rest of the packaging
staff. Be able to take over some of Manager,
Operations duties when needed. Fulfillment
Not Management but shop floor lead. No
degree, not overhead and will be fulfilling,
not overseeing. 10-15+ years experience.
Multiple Fulfillment Staff
All floor work from making packages, to
weigh flower to sealing and labeling.
Reasonable intelligence and trustworthy.
Good work ethic, prefer no degrees, and
ex-military or older would be interesting.
1 Inspector
Same profile as existing Quality people, and
knowledgeable about the process, testing,
what to look for and all the regulatory issues.
Reasonable intelligence and trustworthy.
Prior Quality knowledge in a Regulated
industry, our products would be huge plus
1+ Pharmacist
Discuss with CEO, but believe vision was the
follow-up with patients.
1+ Nurse
Discuss with CEO, but believe vision was the
follow-up with patients.

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Support staff needs were identified. Many of the support staff positions
were expected to only require part-time assistance.
Functional Support Duties Level of Involvement
Operations
Support the end-to-end operations of all
areas. Had role as part-time because the
person will be over all Production.
A lot, every day and will be a lot of their
time to oversee everything.
Human Resources
Hiring, onboarding, training, coaching, firing,
bringing temporary services when needed.
A lot at the start, and after that will
depending on the ramp up speed.
IT
Supporting the IT system, ensuring there are
no issues, integration with PartnerCo and
New ERP. Ensuring people are trained.
Minimal in general, but sometimes could
require full dedication to resolve issues.
Quality
Senior level oversight to ensure Inspector is
doing everything right and to also provide
more experienced input for corrective action.
Some but not a lot given there will be an
inspector assigned, possibly full-time.
Regulatory Affairs
Overseeing all Regulatory issues and
compliance. Interfacing with Quality (who is
the function they will report to)
Minimal (hopefully)
Maintenance
Repair scales, the packaging machine and
any other equipment related to the operation,
including access and environmental controls.
Cannot imagine a lot until Packaging
Machine arrives and hope is that new
hire will have that type of experience
TBD Others
Assume entire staff may be needed to
support activities in this area, but major ones
are listed above.
Additional Receiving Capacity (i.e. more
time from those performing it) will be
required. Not sure we need 100% FTE.

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Job Descriptions for all key roles were created.
Job Purpose
The Manager of Sourcing & Inventory will be responsible for all
Sourcing, Inventory and Forecasting for the fulfillment operations.
They will be the key manager for these areas and run the equivalent
of our Sales & Operations Planning Activities as well as Forecasting.
This is a very important role and should leader to advancement.
Duties &
Responsibilities
• Coordinate all Sourcing with the DS Producers
• Interface with PartnerCo with respect to demand
• Run the Forecasting Tool and process to support all areas
• Work with Operations Manager to create the Daily Schedules
• Manage all aspects of maintaining the product inventory
Qualifications
• More than 10 years business experience
• Previous sourcing/forecasting experience is preferred
• BS degree, preferably in Engineering, Science or Operations
• Highly skilled with Excel, proficient with other systems is a plus
• Math skills are critical. APICS or our DS would be a plus
Role Deliverables
• Maintain the Forecast through the Tool
• Minimize forecast error across entire fulfillment operation
• Main owner of the Forecasting Tool and entire process
• Sourcing and DS relationships
• Product availability to support order types and volumes
• Optimization of inventory levels (out-of-stock vs. working capital)
• Accurate inventory tracking

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Production Control, Forecasting and Inventory Management are three
areas that we wanted to ensure received proper planning.
These areas will be managed by the Manager of Sourcing and
Inventory, though other staff will support the processes.
Forecasting
Forecasting is a bit of an art and science. The objective is to use
various inputs, including Demand Signals, to estimate the future
number and size of orders within a time frame. This is somewhat
unique as compared to other situations, and the lack of IT systems,
data and functionality will all make this a major challenge.
Production
Control
Production Control for this example is going to be more scheduling.
Being able to balance product, labor with customer demands will be a
challenge, and though demand is expected to be variable, we can
manage this variation a number of ways. One of the most effective
will be having MTO (Make-to-Order) demand be produced on the
days it is due and use existing extra labor for MTS (Make-to-Stock).
Inventory
Management
Given the variety of inventory (DS, Variants, SKUs), the need to
source from different DS suppliers, the lack of lead-time to fulfill
orders and the fact that ClientCo will ‘own’ the inventory (i.e. working
capital), ensuring the balance between avoiding OOS (out-of-stock)
with having too much (and possibly product going ‘bad’), becoming
adept at this will be an incredibly key skill for the business.
Operations Design 6 - Production Control

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Because of the unique structure of this venture, the newness of the DS
molecule and the lack of an ERP, a forecasting tool will be created.
External Drivers
• Advertising
• PartnerCo activity
• PartnerCo in the
news
• Promotions
• New web links
• Web traffic trends
• Events
• New products
• Competitor products
• PartnerCo prices
• Competitor prices
• Regulation changes
Contacts
• Phone calls
• Website contacts
Referrals
• Pass contact to
ClientCo dist team
1st Time Purchases
• New registered
customer orders
for first time
Contacts
• Referral registers
on the website
New
Customer
New
Customer
Existing
Customers
Customer
Attrition
• Historical orders
• Average order size
• Price changes
• Seasonal issues
• SKUs available
• New DS CMOs
• New products
• New SKUs
• Repeat frequency
The trends should be fairly steady after the
start, given that an existing base should
provide ‘some’ stability. Given order times, we
should not have much of a backlog, and other
impacting factors will typically not result in
major spikes either way. The demand will
most likely have a range that it will bounce
around inside on a daily basis, with new
patients and attrition estimates pushing that
up and down over time.

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Top-level functional requirements of the forecasting tool were created.
1. Allow for inputting Demand Signals
2. Assessing impact of those Signals
3. Understand trends
4. Provide new estimates or changes
5. Capture old estimates
6. Calculate historical error levels
7. Show moving averages
8. Forecast weekly for 8-12 weeks
9. Forecast monthly out to 6 months
10.Compare inventory availability
11.Input reorder lead times
12.Identify shortfalls and other issues
13.Use close term forecasts for staff
14.Analyze forecasts against
packaging material availability
Major Inputs
• Demand Signals
• Impacts of Signals
• New Patient Est.
• Total Patient Est.
• ML/Patients
• Retail Prices
• Forecast Estimates
• Demand Actuals
• Inventory Balances
• New DS Onboard
• New Products/SKU
Major Outputs
• Order Forecasts
• Shortfalls Identified
• Inventory Needed
• Reordering Points
• Trends
• Moving Averages
• MAPE (Errors)
• Correlation
The development of the forecasting tool was not included in our work
and was intended to be completed after the Manager was hired.
Some of the inputs will be hard values from other sources
or history, while others will be judgment calls, which will
relay on the user assessing past history to decide what
makes most sense. This will not be easy, nor will it have
the precision most people are used to, but a best effort will
be critical in managing the orders, inventory & business.

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Major phases and milestones of critical Processes were created.
Operations Design 7 - Processes
# Short Full Description Completion Milestone
Primary
1 OTC Sales
Selling to Retail OTC
accounts
Orders to OTC confirmed by Production and
communicated back to the accounts for delivery times
2 Confirm
Confirmation of patient
documentation
All patient documents reviewed and information contained
on them has been confirmed
3 Prescribe
Confirming the
Prescription for Patient
Patient requested products and amounts have been
approved and passed to ClientCo fulfillment team
4 Bulk Bulk order received Bulk product received, tested and putaway into storage
5 Packages
Obtain packaging all
materials
Packaging material (bottles, boxes, bags and DS CMO
sent) approved, inspected putaway
6 Pre-Pack
Pre-pack product in
bottles or bags
Pre-decided amounts of DS or other products is
measured and put into containers in advance of orders
7 OTC
Package and deliver
OTC orders
OTC items are pulled (if pre-packaged in 6) or bagged
and consolidated for shipment to Retailers
8 Medical
Package and delivery
Medical orders
Receive, fill and ship orders of medical products to
patients via courier or delivery service
9 Post
Close out paperwork
and perform follow-up
Investigate any issues with delivery, confirm all delivery,
payment and inventory information, close out transaction
Task level details were to be completed in conjunction with ERP rollout.

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The SOPs had three major groups developed, but still needed
updating and refining.
On the following page we mapped out a process to update these areas.
(QA) Quality
Assurance
Additional SOPs will be needed to accommodate the operations of this
venture, and others will be needed to change/add ERP from Old System
or retain both. Additional areas that might need revisions would be the
Product Complaint process, Recalls as well as Record Keeping and
Systems for Electronic Archiving.
Operations
The large majority of changes and additions will fall into here. The
processes should help identify and create many of the new SOPs, but
the ‘starter’ list provided in this section shows the breadth of changes,
and the expected impacts to the SOPs that can be expected. This will
not be a small or quick project, and an understanding of the risks of
operating before these are completed needs to be decided at C-Level.
Security
Do not believe that this area will have a great degree on revisions, but it
should still be reviewed in depth so as to confirm and make those that
are required.
Operations Design 8 - SOPs (Standard Operating Procedures)

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The process had four steps but was only the preliminary structure.
Step 1
List out major
change areas
Step 2
Review all SOPs to
change needs
Step 3
Develop a ‘change
list’ for new/revised
Step 4
Revise and add,
then record
Review the operations
and processes for the
venture and list out all
of the components that
may be new or
required, including IT
related. Objective is to
understand all of the
reasons why new or
revised SOPs may be
required by law.
Review all the SOPs
with respect to the list
and create a list of new
SOPs required or
revisions needed.
Create and assign a
‘change list’ for the
writing of the new SOPs
along with assessing a
priority. Priority could be
driven by Canadian
reporting, or also just
doing the easiest ones
first for momentum.
Replace or add SOPs to
manual and record
changes to comply with
any Health Canada
requirements. Ensure
storage of prior versus
and make notations as to
dates, substitutions and
staff authorizing them.
Our report also identified the most likely areas requiring changes.
Operations Design 8 - SOPs (Standard Operating Procedures)

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New DS suppliers and fulfillment operations required preliminary
assessments of the impact to QA areas to be completed.
• Audits – will expand scope given new rooms and processes
• SOPs – major effort to add and update SOPs, partially due to changeover to Ample
• IT Systems – switch to new ERP from Old System will necessitate this already
• Testing – mostly the same, but more outside product and some new equipment. As
new products are added, this could change greatly
• QA Staff – targeting need for a single new inspector, possibly more later
• QA Processes – primarily the same but will be utilized more
• Training – additional operational training, and possibly some small new QA training
• Internal QA Reporting – small changes, and a few new metrics
• Compliance Reporting – primarily the same
• Environmental & GPP – primarily the same, though physical space expansion into new
rooms or Building 50 could increase the scope of certain activities
• Controls & Traceability – with the addition of multiple DS product being accepted,
stored, given barcodes, packaged and shipped
• Document Retention – possibly some new ones, but more of existing ones required
• Data Integrity from Conversion – with moving off of Old System to new ERP, the
integrity of the data that will be transferred is of concern and will need verification
Operations Design 9 - Quality

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Metrics and reporting were critical for the creation of general reports,
for proper accounting and to maintain customer satisfaction.
• Order & Production volumes
• Forecasts
• Labor efficiency & cost
• Quality issues
• Product destroyed and shrinkage estimates
• Inventory levels
• Product shipments (received, ordered, transit)
• Product availability
• Packaging availability
• Shipping payments
• Tax payments
• Government compliance
• Payments owed to all parties – net reconciliation
The above outlines major areas of focus but others will likely be added.
A plan of what is reported to Partners also needed to be created.
Operations Design 10 - Metrics & Reporting

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Potential Metrics are numerous. A plan showing their utility and value
needs to be created.
• Order volume
• Fulfillment metrics
• Order quality
• Orders in-process
• Inventory levels
• Inventory levels by SKU
• Labor efficiency
• Inventory shrink
• Product destroyed
• Total labors – hours, FTE, cost (if available)
• Labor cost – per order, per vial
• Inventory balances
• Receiving – Batches received / putaway
• Packaging efficiency
• Units/hour
• Units/order
• Each DS/order
• Doses/order
• Dollars/order
• Revenue/employee
• Revenue/hour
• Shipping Cost/order
• Total Revenue/order
• Total Cost/order
• Product Cost/order
• Fulfillment Cost/order (minus product)
• Gross margin/order
• Order turnaround time (maybe)
• Fill rate (how to calculate here?)
• Order accuracy
• Order error rate (same as above?)
• % on-time shipment
• Inventory turnover (total, by DS, by SKU)
• Return rate
• Customer attrition (tricky, by week, month, quarter?)
• Customer re-orders (same as above, need to think of ‘how’)
This page, and other pages, contain a variety of
metrics, but priorities and data access (e.g. weak
systems) will constrain the breadth of data and
require manual manipulation. The Operations &
Sourcing Managers need to agree with the senior
leadership team and Finance as to where the
priorities are.

28
We created an example Reports page with ideas on their contents and
audience.
Some metrics were to be calculated daily, some weekly and some
quarterly.
Report Freq. Contents (Examples) Purpose Preparer
Weekly Production Weekly
• Units shipped by SKU
• Units ordered, not shipped
• Efficiency
Overview of production for the week
and any issues that arose
Manager,
Operations
Inventory Balance Weekly
• Total inventory in MLs & $s
• Inventory levels by strain
• Shipments on order
Inventory balances at aggregated
and DS/variant level & in-transit lots
Manager,
Sourcing &
Inventory
Forecast Weekly
• Weekly forecast 12 weeks
• Monthly forecast 6 months
• Potential risks/shortfalls
Forecast for orders by DS, variant
and SKU for next six months
Manager,
Sourcing &
Inventory
Quality &
Compliance
Weekly
• Production defects
• Issues found, C/As initiated
• Testing results (new batches)
Show quality performance and
highlight any issues that could impact
operations.
Manager,
Quality
Orders, Shipping &
Revenue
Monthly
• Total orders shipped
• Categories by orders/dollars
• Revenue split by partners
Overview of total operation revenue,
and dollars and liters to provide
operations view.
Manager,
Operations
ClientCo & PartnerCo Monthly
• Taxes to be reimbursed
• Revenue share distribution
• Shipping costs to reimburse
Show key areas of performance, but
also show the dollar amounts
needing payment reconciliation.
Manager,
Operations
Monthly / Quarterly
Report
Monthly
Quarterly
Summary of all of the items
above, with most pertinent items
and issues presented
Overview for Executives and Boards,
possibly along with release to
investors (e.g., PartnerCo).
Manager,
Operations
Note: All reports are to be made available to ClientCo Team, Executives or PartnerCo/PartnerCo people interested.

29
Finance was to be a major participant in this venture. We have
outlined specific areas where information is needed.
Operations Design 11 - Finance
Top Level Area Specific Area Rationale Data Needed (examples)
Expenses &
Cost Allocation
DS Purchases
For payments and understanding
of profitability & revenue share
Total product MLs and dollars,
along with shipping & taxes
ClientCo DS Used For profitability & revenue share
MLs allocated, along with some
kind of costs if possible
Employees & Time
To ensure payment, understand
performance and profitability
People, hours and rates/salaries
Temporary Services
People, hours, rates and
expenses
Packaging Costs
Types of packaging, for what and
lot costs and shipping
Shipping Costs
To ensure payment and ensure
reimbursement from PartnerCo
Costs and appropriate
connection to orders
White Label Costs
Calculate profitability and for the
markup for revenue share
All development and variable
costs
Inventory Balances
Overall understand of working
capital & inventory holding costs
Al inventory by DS and variant,
along with prepacked by SKU
Quality – Rejections
Performance along with
understanding profit impact
Rejections, size of product and
reasons
Quality – Shrink
Understanding of size of
operational losses of product
Known shrink issues and causes
Quality - Destroyed
Understanding of losses in
process to focus mitigation
Product destroyed, lot and
reasons

30
outlined specific areas where information is needed. (continued)
Expenses &
Cost Allocation
Quality – Returns
Cost of returns could require
reimbursement from LPs
Returns, size, cost and
frequency / lots
Quality - Recalls
Cost of recalls could require
reimbursement from LPs
Recall magnitude, root cause
and total costs (direct/indirect)
Testing Fees
For payment and to understand
cost impacts on inventory holdings
Testing costs, lots tested, size of
lots and labs used
MRO & Consumables Payment and profitability
Items purchased, unit cost,
volume, vendors and usage
Other Purchasing
Payment and profitability, and
identify major cost items not seen
All other purchasing of goods
and services, reasons/usage
Revenue &
Forecast
ClientCo Sales
Reimbursement from PartnerCo
and profitability (15% + Margin)
Total ClientCo product sales by
SKU and by province
RM Product Sales
and profitability (15%)
Total LP product sales by LP and
by SKU and province
RM Materials Bought
Total LP product sourced by
strain and all costs
PartnerCo Sales
Total PartnerCo product sales by
SKU and province
PartnerCo Bought
Total LP product sourced by
strain and all costs
White Label Sales
and profitability (10% Cost +15%)
Total White Label product sales
by SKU and province
Forecast
Allow finance to understand
potential future economic impact
All SKUs for all horizons
forecasted, dollars & volumes

31
outlined specific areas where information is needed. (continued)
Taxes &
Government
Excise Tax Liability
Needed to ensure payment,
compliance & reimbursement
Excise stamps used, for what
and tracking back to $s or MLs
Health Canada Tax
Ensure taken out of price to
calculate ClientCo revenue share
and also for payment
All dollars and MLs of sales by
province
GST or HST
province
Provincial Sales Taxes
province
SRF & Other Taxes
province
Wholesale Taxes
Taxes of DS products will be
sourced, may be included in price
Total wholesale taxes paid by
ClientCo on DS sourced product
Licensing Fees
To understand the operations of
the business and manage
All license fees for facility, people
or equipment payable to Govt
Other Compliance
Any other payments to
government entities need tracking
Any other Government payments
The various taxes were both complicated and critical, both for
compliance and reimbursements by the different partners.

32
Five areas of the Facility’s requirements were identified.
1. Selection of rooms for Production
a) Starting
b) Ramp-up
c) Blow-out
2. Selection of space for storage
a) Bulk DS product
b) Packaging materials
c) Packaged product / packaged orders
3. Preparation required for both Production & Storage Rooms
4. Layout for selected Production Room
a) Tables, racks, mats and chairs
b) Process flow
c) Printers and terminals
5. Additional Facility Considerations (OTC is already looking at these issues)
a) Locker rooms
b) Parking
c) Lunch room usage
d) Bathroom access / usage
Operations Design 12 - Facility

33
We analyzed loss prevention for the high-value products and created
mitigation strategies.
# When? What could happen? How to mitigate this?
1 From Vault
• Containers of DS batches go missing
• Other batches taken out and lost
• Other material placed into containers
• Cameras and limited access to Vault(s)
• Inventory counting
• Access accountability (who went in, when)
2 Create a Batch
• DS taken out, not put into product
• DS taken from batch before put into unit
• PIC or Trusted person manages process
• Check container fill before taking out
3
Product Is
Measured
• Scale weight of DS is wrong or misread
• Weighed batches is misplaced
• Product spills on trip to the scale
• Weight is wrong / e.g. bag weight entered too high
• Confirm scale accuracy (std weight test)
• Watch weighing process
• Mix up teams for weighing
• Selectively check weighed products
4 Put into Vial
• Other substance put into bag instead (partial also)
• Not all DS put into bag
• Vial isn’t sealed properly, DS can come out
• Watch for non-DS substances
• Cameras on staff doing filling
• Check all vial seals, move to staging
5 Staging for Case
• Cartons are stolen before being put into the case
• Units misplaced before being put into stage area
• Cartons are replaced with fake vials
• Separate area for staged vials
• Keep each team’s separate and counted
• Weigh in aggregate to catch empty vials
6 Case Sealed
• Cases are misplaced
• Cases are opened, units taken out
• Cases are opened, fake units are swapped out
• Control delivery into storage room
• Case numbering or tracking
• Delivery room access restricted / cameras
• Maybe a case stamp or wax seal
7 To Carrier
• Case of product is stolen
• Case of product is switched with non-product
• Case is opened and units are taken out
• Control delivery into storage room
• Case numbering or tracking
• Delivery room access restricted / cameras
• Inspect/get signatures from carrier driver
Operations Design 13 - Product Security

34
The capabilities and use of the three major IT systems were analyzed.
• What are we using it for? Or plan to use it for?
• What functionality has it shown?
• What have been some identified gaps? Did we resolve them?
• What else does it claim to do?
• What other modules does it have? Do we own them?
All the identified gaps need to be analyzed to determine if there is an existing off-the-shelf
software that could fill any gaps (i.e., cost in the hundreds of dollars) or if we need to make
an Excel, Access or a pure manual workaround.
The following slide shows some of the general functionality required
as compared to major ERP functional package areas.
Operations Design 14 – IT Systems

35
To better understand software requirements, we developed a
Functionality Needs report for the new ERP.
# Area / Module Functionality Needs (examples)
1 Supplier / Vendor Management
Manage Suppliers, history, terms, pricing & deliveries
Support payment of invoices
Shipping / Transportation companies (also in Finance)
2 Workflow / Production Control
Product scheduling development
Product workflow tracking
3 Forecasting
Demand Management
Forecasting material needs
Estimating availability, workloads and revenue
4 Inventory / Warehouse Management
Product receiving
Inventory balances and management
Support forecasting and drive replenishment
5 HR / Timekeeping
Time management / time keeping of staff
Payroll
Wages
6 Financials
Revenue sharing
Invoicing & A/R / credit card payments
Tax payments
7 Order & Customer Management
Invoicing / payment processing, Revenue Share calculations
Customer addresses
Customer order history
8 Quality
Quality management
Compliance history (documentation for Government)
Issue tracking and corrective action for resolutions
Operations Design 14 – IT Systems

36
Packaging and Labeling were critical. The various outputs were
identified, and highlighted to ensure proper future completion.
ClientCo
Packaging
PartnerCo
Packaging
Labels
Bulk Labels
Patient Labels
Address Labels
Bottles
Shipping Containers
Bottles (or other medium)
Shipping Containers
Bulk Labels
Information Transfer from systems
Patient label fit on packaging
ClientCo Logo everywhere needed
Stamps and postage
Establish/review Partner packaging
Set-up SKUs for their items
Establishing tracking mechanisms
Train staff on Partner packaging
Coordinate delivery
Tie to forecasting
Vendors
Lead-times
Bracket prices
SKUs
Storage Locations
Tie to forecasting
Operations Design 15 - Packaging

37
To properly launch and manage Packaging & Labeling, the following
needed to be completed.
• Analyze Label requirements with Old ERP functionality, map data fields.
• Ensure proper printer placements and hook-ups in right places in Production.
• Revise bulk labels to accommodate more in/out activity.
• Coordinate DS and PartnerCo packaging, sources and approval.
• Share Forecast with PartnerCo & DS firms, along with inventory reporting for packaging materials.
• Coordinate preliminary packaging shipment arrival and discuss cadence for future.
• Review pre-making boxes and storing in the Purchasing Room
• Set-up Vendors for all ClientCo packaging materials (assume already done).
• Stock ClientCo vials, caps, cartons, box bags and boxes.
• Review opportunity to pre-assemble cartons in store in Packaging Room.
• Review DS labels and packages to ensure ClientCo logo is present when needed.
• Create SKUs for DS packaging and decide how/where to track the inventory.
• Set-up storage areas for all DSs suppliers and their related packaging.
• Confirm interface between Old ERP and postage calculator and stamp printing.
• Prepare for Packaging Machine’s arrival next year, confirm capabilities.
• Review less expensive packaging options.
• Consider elimination of internal packaging for smaller lots.
Operations Design 15 - Packaging

38
The following plan was outlined for Transportation and Shipping. The
newly designated Operations Manager was to oversee this area.
• Confirm feasibility with the chosen carrier (assumption is Canada Post).
• Utilize existing contract (ClientCo or PartnerCo) or create a new one.
• Confirm any regulatory, insurance or other provisions required.
• Discuss protocol for receipt signatures or absent recipients.
• Review information exchanges, IT system communications and downloads needed.
• Set-up payment and audit mechanisms.
• Understand tracking and how to investigate any delivery anomalies.
• Confirm pick-up schedule at ClientCo warehouse. Assume once a day, every day.
Most of the above was incremental to existing activities.
Operations Design 16 - Transportation

39
For any questions or clarifications, please feel to contact us.
Contact Details
Any questions, please contact:
Jay Martin
Chief Innovation, Inc.
Dallas, Texas
Please contact me via the LinkedIn profile below:
www.linkedin.com/in/jaymartindallas
www.chiefinnovation.com
(214) 520-8019
Operations Design Contact Information

Case Study - New Operations Plan & Design (Full version)

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