The following posting can also be viewed and commented upon in the Kinaxis Supply Chain Expert Community web site.

Very early in my supply chain career, I had a boss who had an expression: “When certain news about parts shortages becomes public, you know that the crap has hit the fan.” That was way before the existence of Sales and Operations Planning processes.

In a span of just a few days, two major financial media publications, The Financial Times and The Wall Street Journal, featured articles reporting on how select parts shortages are affecting major manufacturing companies, and in some cases, their financial results.

The FT article, Supply chain woes threaten global recovery, (free preview account may be required) expresses a concern that big manufacturers could be held back in their financial performance by their inability to secure vital components from weakened supply chains.  The article cites a recent survey by MFG.com  noting that: “Some 51 per cent of big US manufacturers said they experienced “significant supply chain disruptions” in the second quarter, while 42 per cent of small and medium-sized suppliers said they had received queries or work from larger companies in need of urgent assistance because of supply chain problems…” Shortages appear to be particularly affecting electronic components across multiple industries. Companies such as Boeing, Caterpillar, General Electric and Volkswagen were each cited as having challenges. In our Supply Chain Matters Q2 Global Supply Chain Snapshot of global manufacturers, we also picked-up on GE’s and others’ messages of select parts shortages potentially impacting this quarter’s results.

The WSJ article, From Snowmobiles to Cellphones, a Scramble for Parts, (paid subscription or preview sign-up may be required)  further notes that companies have had to reconfigure offered products due to persistent supply shortages.  It notes that shortages of transistors, capacitors and integrated circuits became pronounced in the first quarter, and persist in the second quarter.  Telefon AB L.M. Ericsson indicated that shortages cost the company $400-$550 million in sales and delayed shipments, and Royal Phillips Electronics, Polaris Industries Inc. Motorola and Whirlpool are also mentioned as being impacted.  Motorola CEO Sanjay Jha  summed it best noting that his company is scambling in a “constrained environment”.  Companies utilizing current hard-to-find components are seeking their own fixes which include offering customers different features or alternative components and/or technologies.

This news of critical parts shortages is not a surprise to the supply chain community. Our community deals with these very problems every day.  The fact that they have now reached global visibility, however, is an important sign that now, more than ever, is a critical time for education of senior management on the importance that an integrated Sales, Operations and Inventory management process can have in the ongoing managing of this constrained environment.  I would hasten to add that it also reinforces the need for active participation from Finance, with integration to the company’s financial planning process, or active participation from Product Design and Management to provide alternatives to other components.

As a community, we sometimes get accused of placing too much emphasis on the importance of the S&OP process.  Some may wrongfully argue that it may be merely a process to drive consensus around “bad news”.  To the contrary, in the current supply and capacity constrained environment, particularly concerning the impact to the ability of smaller suppliers to scale, the S&OP process is critical towards addressing cross-functional plans and strategies to support a sales plan.  The other take-away message is that change will be a constant through at least the remainder of this year, and the term “agility in the supply chain” has even more criticality.

Senior management does not relish news stories about how parts shortages impacted results.  They instead favor stories on how the supply chain overcame difficult challenges.  Now more than ever, fill-in the white space for your senior management team.

Bob Ferrari

Last month, I wrote a guest posting on this blog about my search for the source of my generic prescriptions and commented that I learned that my American Pharma company contracted with manufacturers and drug suppliers from foreign countries, and to my chagrin it was nearly impossible to find out where my drugs were made.    In my commentary I expressed my view, as a drug consumer,  hat the same regulatory diligence and vigilance required of drugs manufactured in the U.S. also be extended to international manufacturers.

I am still apprehensive about the preponderance of foreign drug manufacturers and suppliers that are not US FDA approved or regulated.  However, I was heartened to read that Senator Michael Bennet is sponsoring a new Senate bill, The Drug Safety and Accountability Act of 2010, which gives the FDA the authority to make sure our prescription drugs are safe and pure.

One article, Act aims to fortify FDA rule of non-U.S drugs, notes that what makes this bill different from the others introduced in this legislative session is that it has a supply chain focus that “attempts to strengthen quality standards industry-wide, reaching beyond U.S. borders to such countries as India and China, home of a growing population of contractors governed by less stringent regulatory standards than the U.S.’s.” In my view, that is rather significant.

Over on IndustryWeek.com, another article, New Bill Strengthens Government Authority over Pharma Supply, quotes Senator Bennet as noting that “up to 80% of the active ingredients in U.S. drugs are made overseas, many in countries where regulatory oversight does not meet U.S. standards.” The article highlights some major bill proponents, including the Society of Chemical Manufacturers and Affiliates (SOCMA).  Senior Vice President Ken Johnson of Pharmaceutical Research and Manufacturers of America (PhRMA) states in this article that “Drug manufacturing for the U.S. market…is regulated under Good Manufacturing Practices (GMP) by the FDA…[which] assure the safety, quality and purity [of the] U.S. prescription drug supply.”

This proposed bill addresses some of my concern about relying on the assurance of any particular pharmaceutical company that all its specific drug suppliers are from U.S. FDA approved sites.  The drug supply chain has many links, and without stringent oversight, there is the likelihood that there will be undocumented breaks in the supply chain, thus leaving the pharma company and its consumers at great risk.  There are so many recent reports and examples of tainted, counterfeit, and recalled drugs that have bolstered consumer fears. The bill seems to give the FDA some teeth in terms of investigating and assessing penalties, improving manufacturing and supply chain standards, requiring accurate documentation, and implementing an accurate information tracking system. It extends the oversight to over-the-counter (OTC) drugs, as well.  This is a huge plus for consumers.

The Drug Safety and Accountability Act of 2010 has the potential of being a beneficial protection for U.S. prescription and OTC consumers.  If this bill can assist in insuring that drugs in the supply chain distributed to U.S. consumers, by any and all manufacturers, equally meet safety, purity and accurate specifications, then I am all for its passage.

Marie Ferrari