Supply Chain Matters had the opportunity to attend SAP’s Supply Chain Management Summit meeting at SAP North America headquarters. The purpose of this day and a half  summit was to bring SAP’s current supply chain management applications customers together to share information and gain further knowledge on SAP’s various software applications supporting supply chain business processes.  In our initial part one posting, Supply Chain Matters provided commentary on the leadership change within SAP SCM.

We had the opportunity to attend a number of educational sessions during the Summit.  Here are some summary impressions.

A deep-dive session entitled Best Practices in Improving Supply Chain Response Management was rather interesting.  The session facilitators billed their presentation as an educational overview on the role and purpose of response management and stated up-front that the session would not be technical.  The audience however had other needs, and wanted more detailed knowledge on how the newly released SAP Supply Chain Response Management by ICON-SCM would specifically integrate with SAP’s APO and SNC and ERP ECC applications. What became evident is that integration to other existing  SCM applications is still a work-in-progress  What was mentioned is that the initial integration target involves Global Available-To-Promise (gATP).  Also mentioned was that in the interim, customers desiring integration of Response Management to existing SCM or other applications can do so on a custom project management basis.

A session summarizing all the changes incorporated in SAP APO Version 5.0 and 7.0 reinforced that APO customers need to keep abreast of changes, since a lot of enhancements continue to be added.  The key takeaway for APO users is SAP’s message that Release 7.0 provides the staple ECC core release, and that once customers move to 7.0, they will be able to henceforth take advantage of SAP’s less disrupting Enhancement Release Paks which promise to make future upgrades less disruptive.  Eric Simonson of SCM Solution Management demonstrated superb and detailed knowledge of various APO enhancements, and APO customers should keep Eric’s contact data on their smartphones.  One of the other most significant takeaways for SAP customers in life sciences and process industries is that APO has finally addressed comprehensive and detailed support for shelf-life planning, an issue that dates back six years. Supply Chain Matters would be highly interested in speaking with any SAP APO customer who has had experience with this newest shelf-life optimization technology.

There were a series of roundtable luncheons involving customers representing specific industries.  Supply chain Matters sat in on the Life Sciences roundtable that included representation of a broad cross-section of life sciences companies spanning generic drugs, proprietary drugs and pharmaceuticals, medical devices and other ancillary products.  The listing of hot topics and process challenges was quite comprehensive and by our count, the ones most emphasized included lean enablement, extended warehouse management, master data management and reporting, inventory optimization and response management.   To our pleasant surprise, we also discovered that SAP currently sponsors four different forums dedicated to the topic of supply chain tracking and serialization, which is another life sciences challenge given upcoming state and governmental mandates for supply chain drug tracking capabilities. Many life sciences companies are also moving toward extended contract manufacturing, which has added more challenges for visibility and process controls.

By our observation, the most widely attended customer sessions involved Newell Rubbermaid’s use of SAP APO to enhance its S&OP process, and Medtronic’s deployment of SAP Enterprise Inventory Optimization by SmartOps, one of SAP SCM’s other solution extensions.  A lot of learning and watch outs came from both of these presentations. Supply Chain Matters will provide additional comment in subsequent postings.

Overall the Summit was very educational, providing ample time for attendee networking, which is rather important in these times of social media.  Some attendees indicated that they preferred these smaller sized venues, as well as a location that was easy to travel to by automobile, train, or quick plane ride.

In the category of disappointment, was the lack of any definitive knowledge-sharing of how SAP’s ongoing in-memory HANA technology would play a role in SAP’s evolving SCM suite, especially SAP APO. At this year’s Sapphire, SAP Supervisory Board Member Hasso Plattner indicated that APO would be a top priority for HANA. The lack of any education or update was an opportunity lost.

Bob Ferrari

An article appearing in the July 22^nd edition of the Wall Street Journal (paid subscription or metered free view required) cites an internal investigation led by Johnson & Johnson’s independent directors which points to a direct connection from certain headcount reductions, along with  “periodic headcount freezes’ as contributing factors related to product quality breakdowns at the company’s McNeill Consumer Healthcare unit.  Millions of bottles the unit’s popular medicines such as Tylenol and Motrin have been recalled since 2009 for various quality defects. While these defects did not pose serious health risks, J&J’s financial results and brand reputation have suffered significantly. Sales of alternative products such as Bayer‘s aspirin products and Novartis’s Excedrin product have been on the rise and consumers make their own decisions on pain relievers.

Supply Chain Matters views this latest development at J&J as extremely significant since the internal investigation by the J&J board points to a causation area that many in supply chain have long suspected, too many cutbacks in important control areas, and too many conflicting operational goals. It also, in our view, points to more evidence of the pitfalls in de-centralized organizational structure surrounding manufacturing and supply chain needs.

The WSJ article notes from the J&J investigation that in 2007, J&J cut its world-wide quality and compliance staff by 35 percent (15 people), and reduced its worldwide healthcare compliance staff by 25 percent (4 people). A direct WSJ quote- “At McNeil’s manufacturing plants, “there seemed to be a lack of attention to product quality” by certain non-quality control workers, such as engineering and operations, which produced tension between quality control and operations, the report said.” “Periodic head-count freezes and an emphasis on production volume may have contributed to this situation,” the report said.”

According to the WSJ and other news reports, J&J’s board has now adopted the recommendations made in this internal investigation and has created a regulatory and compliance committee of the board to oversee quality compliance.  The board also elected not to pursue litigation against the officers and directors that were previously accused by shareholders of breaching their fiduciary responsibilities.

Supply Chain Matters has long sounded an alarm that supply chain resources have been cut too thin in many industry sectors.  The revelation of this internal investigation is ever more significant in that these cutbacks occurred in a company well noted for its reputation for quality branded products, and existing in a highly regulated industry.  Saving the cost of 19 corporate quality and compliance people and perhaps hundreds of other distributed operations people is now translating to far more millions of dollars in lost sales, and an untold hit to consumer confidence in J&J brands.  We noted in a commentary just a month ago that the symptoms at J&J pointed to systemic quality breakdowns and cost control efforts that may have compromised quality, consistency and compliance.

With drug supply chains now extending ever further to include lower-cost regions, the risks of quality compliance are far higher. Life sciences manufacturers need to take heed of what has occurred at J&J and not repeat the same steps.

Bob Ferrari