Product Recall and Supply Chain Risk Implications Continue for Multiple Industries

There have been new developments this week in the area of major product recalls which warrants some Supply Chain Matters commentary.

The Saga of Johnson and Johnson Continues

The news headlines this week featured the announcement on the nationwide recall of more than 13 million packages of chewable versions of anti-acid drug Rolaids after reports by consumers of finding metal and wood particles in products.  Rolaids is a business unit of Johnson and Johnson’s McNeill Consumer Healthcare Group who has been challenged by a litany of previous other product recalls of millions of bottles involving suspected quality of products.  Stellar brands such as Tylenol and Benadryl were previously included in large product recalls and now another comes to the forefront.

To its credit, J&J and McNeill have instituted a large-scale corporate action plan to address manufacturing quality and control processes and have also taken the extraordinary step in the shutdown of McNeill’s Fort Washington PA manufacturing facility while all production processes and equipment are reexamined for remedial needs.

What makes this new recall even more troubling is that it involves production that occurred at an unnamed third-party manufacturing facility, and thus the quality crisis takes on a broader supply chain perspective.  A New York Times article notes that the U.S. Food and Drug Administration (FDA) has additionally cited a McNeill plant in Puerto Rico for distributing products that failed quality requirements along with other serious issues dealing with conformance to Good Manufacturing Practices (GMP).

On the regulatory and political front, this latest incident only increases the negative attention turned toward J&J’s practices.  The House Committee on Oversight and Government Reform through a spokesperson has indicated that this latest incident will add to committee efforts to seek answers from J&J and the FDA on the safety protocols in place at all J&J related facilities.

Meanwhile the financial implications related to this perceived breakdown in manufacturing quality continue to build for J&J.  Earlier estimates were that the plant closure would reduce sales by $600 million, not to mention an estimated $100 million plus investment in re-tooling plant production processes.  Other trade reports have indicated that consumers are now opting to purchase other brands, including generic ones, because of their concerns relative to the overall safety of  J&J brands.  Wall Street analysts are now speculating that J&J may decide on other plant closures, and some ratings on J&J stock are being degraded.

Readers may recall previous academic studies that correlated various disruptive supply chain events to consequent periods of degraded shareholder performance. In the case of J&J, there is yet another case-study reinforcement.  A company with a previous stellar reputation for product quality and consumer responsiveness is in crisis, and that alone should be a sobering signal to other industry players on the importance of identifying, understanding and mitigating all aspects of potential supply chain risk.

The Aftermath of the Massive U.S. Recall in August

The Associated Press reported that egg sales in the U.S. have started to rebound after the massive Salmonella-related recall involving 550 million eggs produced and distributed by Iowa based farms associated with conglomerate DeCoster Egg Farms. Retail egg sales in August were reported to be down 9 percent, making it the slowest month in at least two years. By November, retail sales assumed just about normal levels.  Some specialty egg producers, those with reputations for higher quality or organic actually benefitted from the crisis.

The article notes that U.S. consumers tend to have short memories, especially when dealing with such a widely adopted food staple as eggs. Consumers apparently have this belief that problems will eventually get solved.  Perhaps U.S. consumers need to reflect on the beliefs held by Chinese consumers, who after the massive contaminated milk scandals of two years ago, still have issues in the trusting of brands related to Chinese owned dairy farms.

The egg industry has spent about $1 million on an ad campaign that emphasizes a commitment to food safety.  Apparently, the belief that marketing can cure all ills remains. To its credit, one nationwide producer, Dixie Eggs actually hired a full-time director of food safety, a responsibility that was previously split among several other people. We applaud Dixie for its action. Other producers need to step-up their commitment to quality, beyond just marketing.

While U.S. consumers continue to exhibit short memory spans, we at Supply Chain Matters will at least attempt to keep a watchful eye on industry developments and comment on real efforts by the industry to actually improve quality and safety standards.  If industry players believe they have a real story to tell, than convince us.  Otherwise, let’s  sincerely hope that we do not have to revist yet another development in a large scale recall of egg and egg-related products.

Bob Ferrari

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