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Reduced Staffing Contributed to Johnson and Johnson’s Quality Breakdown

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An article appearing in the July 22nd 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

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