Johnson and Johnson, beleaguered by multiple episodes of product recalls dating back to 2009, have yet again announced a voluntary recall.  Ortho-McNeil Neurologics Division of Ortho-McNeil Pharmaceuticals, Inc., an affiliate company of J&J has issued a voluntary recall of two lots of TOPAMAX® 100 mg tablets, a drug used to treat symptoms of epilepsy.   The estimated 57,000 effected bottles were shipped to customers  about 6 months ago.  Four consumer complaints of an uncharacteristic odor thought to be trace elements of the chemical TBA were cited as the motivator of this latest recall.

Our readers will recall that complaints of odors seeping into the final product from wooden pallets were also cause for previous product recalls involving J&J’s McNeil Consumer Healthcare division. In its latest statement, J&J notes that in January, the company instituted a number of actions to reduce the potential of TBA contamination including requiring suppliers to evaluate potential sources of TBA.  The company also notes that it is working with other peer companies to better understand where TBA contamination is entering and impacting the supply chain, and where exposure can be further mitigated.

In our view, why did it take until January to initiate such an investigation, when symptoms of this specific odor problem date back to as early as 2008?

In our upcoming Q1 2011 Supply Chain Matters Quarterly Newsletter, we will provide further commentary regarding the important learning that can be garnered from what has been occurring at J&J.  A company who had a stellar reputation regarding quality, sadly, continues to respond to a supply chain and production related quality crisis with little public evidence of broad management accountability and commitment.

In the meantime, we call our readers attention to a superior analysis and insight article written by David Voreacos, Alex Nussbaum, and Greg Farrell, which was published in the April 4-April 10, 2011 edition of Bloomberg BusinessWeek. This article provides a rather comprehensive overview of the J&J crisis that actually dates back to events occurring for a decade.  What we believe is a profound takeaway from this article is that today, with all of these cascading events reflecting systemic breakdowns in quality and control processes,  The article cites industry observers pointing to decentralization, fat margins and leadership lapses as potential root causes. J&J’s CEO William Weldon continues in denial that the cascading problems lie beyond its troubled McNeil OTC division. CEO Weldon insists that the quality issues involving three plants has overshadowed activities involving over 120 plants, and fully expects that J&J will regain the trust of consumers and patients.  But as is noted in the BusinessWeek feature article, the very culture of J&J has reflected a pattern of behavior that is at odds with its public image, and spans multiple businesses and product areas.

The following commentary can be viewed and commented upon on the Supply Chain Expert Community web site.

As many of the supply chain management community are acutely aware, the after-effects of the earthquake in Japan will have far reaching impacts on multiple industry and global value-chains.  A lot of commentary can be found in the blogosphere and in traditional media, and we at Supply Chain Matters have also added our own perspectives which can be reviewed here and here.

Before continuing with this commentary, we should again emphasize our empathy for the people and victims within Japan who have and continue to endure the effects of this calamity.  Our thoughts and our prayers should continue to be focused on their recovery.

Unfortunately, tragedies bring implications and that is on what this commentary will reflect.

At this particular time in this evolving crisis, the one important unmistakable conclusion is that just like the 2008 global financial crisis, the Japan event will ultimately seed a number of significant watershed changes for industry supply chain strategies and capabilities going forward. The open question is how significant and how deep.

In this commentary, we reflect on a few of the more significant implications.  Jason Busch of Spend Matters called attention to a Paul Martyn, commentary published on Forbes.com that noted an estimate that it would be 9 to 12 months before production can return to pre-disaster levels. That seems to be a reasonable general estimate and there certainly could be some outlier exceptions, particularly in electronics and automotive sectors.  In his commentary, Martyn predicts three major shifts as a result of this crisis:

1.       A lessoning of the rigidity of zero inventory policy that many companies have been following these past few years.

2.       The entry of new players takes advantage of the crisis to seize new revenue opportunities.

3.       Bullish upside for U.S. and perhaps North American based manufacturers that stand to gain in the short-term as alternative suppliers.

Regarding point three, Jason Busch opines that then again, U.S. manufacturers may once again be unable to respond to the new business opportunities because of a lack of required capabilities in key people skills such as machining, welding, design and other specialized manufacturing.  Needs for updated capital equipment are also expressed. Steffora  Mutschler, contributing editor on EDN notes in a commentary a specific prediction from Dale Ford, senior vice-president of market intelligence at IHS iSuppli where Ford asserts his belief that for the semiconductor industry as a whole, the earthquake will provide the biggest impact in the history of the industry. None of the previous natural disasters have been as broad in multiple supply chain impacts.

We would add our prediction that this crisis, when the dust finally settles, will also challenge the very foundations of procurement and outsourcing strategies which will cause product development, strategic sourcing and supply chain management teams to reassess their policies and processes in product and component sourcing.

The crisis will be another critical reminder to the importance of having solid supplier relationships, including how priorities during a crisis will always lean toward established and loyal customer and supplier relationships. While previous strategies were primarily motivated by lower cost considerations, Supply Chain Matters believes that the current realities of business risk and changing end-markets will challenge previous management motivations. The era of the CFO dictating supply chain strategy is about to be shaken to its core.

For the longest time, supply chains have been constantly reacting to all forms of crises, either internally or externally driven.  The voice of the supply chain has been hampered perhaps by an inability to converse with the boardroom and articulate desired business outcomes with required capabilities in planning, agility, procurement policy and customer fulfillment. Too often and too frequently, supply and value-chain strategy directed at needs for specific business driven outcomes have been rather viewed in a ‘cost center’ or ‘shared service’ mentality…  “We will not have inventory!  We do not have the time or budget resources to address specific risk or needs for process agility! Planning on spreadsheets can get the job done just as effectively!”

Traditional industry analysts harp on being more demand-driven or customer focused, and can well cite numbers of multi-national companies who had the foresight and budget to invest.  The crisis involving the after effects of the Japan disaster is a supply-driven crisis, with many implications to all sizes of manufacturers and service providers relative to customer demand, industry competiveness and perhaps the role and fabric of the supply chain.

How have the events in Japan changed thinking in your company, or has it neglected to change any thinking?

Weigh in and let’s get a conversation started.

Also, take the time to participate in our Supply Chain Matters interactive polling question of the month and ascertain how other teams may be impacted by Japan.

Bob Ferrari