Our readers with association to the pharmaceutical and drug industry may recall that in mid-February both major drug distributor Cardinal Health and drug chain CVS pharmacy had certain southern Florida facilities temporarily shut down. Four pharmacies located in the Sanford Florida area suspected of selling “staggering” volumes of the controlled drug oxycodone lead to strong suspicions of a huge black market in this specific area. The U.S. Drug Enforcement Administration (DEA) took the unusual step of targeting the supplier to these pharmacies, Cardinal Health Inc., the second largest U.S. wholesale pharmaceutical distributor, by seeking to block distribution of controlled substances from Cardinal’s distribution facility located in Lakeland Florida. The DEA alleges that Cardinal had failed to follow agreed-to monitor misuse of controlled substances such as oxycodone. Cardinal has attempted to appeal and overturn the injunction on controlled substance shipments from its Lakeland distribution facility but has thus far been unsuccessful in doing so. An administrative hearing is scheduled to occur next month.
Business and traditional media are reporting yet another major development in the ongoing crackdown of prescription drug abuse among U.S. regulatory agencies. On Wednesday of this week, the DEA searched six Walgreen retail locations as well as the company’s distribution center in Jupiter Florida. The agency is investigating whether Walgreen allowed suspiciously high levels of prescription pain pill retail sales. Walgreen represents one of the largest U.S. pharmacy and drug chain with over 8000 locations across the U.S.
In this latest crackdown, federal officials are probing for larger amounts of cash sales, as opposed to insurance reimbursement sales. The Associated Press reported that DEA records indicate sharp increases in oxycodone purchases at each of the targeted Walgreen retail outlets. One example, the pharmacy located in Ft. Myers went from a volume of 95,800 units of oxycodone in 2009, to more than 2.1 million units in 2011, accounting for 67 percent of that drug’s purchases within the same zip code. Walgreen manages its own distribution, and as was the case with Cardinal, a potential shut down on controlled substance and prescription drug supplies from its Florida DC could have an economic and store service impact.
In its reporting, The Wall Street Journal notes that Florida has had a long history for pill mills that offered one-stop shopping for controlled substance abuse. A recent state-wide crackdown on these private facilities may be forcing the abusers to turn their attention to retail pharmacies.
This should be concerning news for the broader pharmaceutical industry, along with its supply chain distribution partners. Regulators are clamping down on the requirement for policing unusual purchase volumes, and are holding drug distribution trading partner’s feet to the fire to perform such actions. For their part, distributors believe that the DEA has not been clear on what policies need to be adhered to, or the granularity of sales information that needs to be tracked.
Supply Chain Matters is of the view that drug retailers and distributors will not be successful in their current defense strategies, so stop making the lawyers wealthier. Instead, stakeholders need to quickly come together in an effort to track higher levels of granularity of prescription drug demand and supporting disease data and be prepared to take appropriate action to target and mitigate abuse. The good news is that current technology is more than able to enable these needs.
Overcoming cross-industry organizational and business performance obstacles should be the focus.
Of late, Supply Chain Matters has provided a number of commentaries concerning a trend toward more vertical integration of a firm’s supply chain components. The context has been industry specific, or the notion of closed vs. an open supply chain. Some examples are Hon Hai Precision for the former, and Hyundai Motor for the latter.
We were therefore surprised to read a report in today’s Wall Street Journal (paid subscription required or free metered view) indicating that Delta Air Lines is in talks to acquire a previously idled Pennsylvania oil refinery. While industry and Wall Street observers are viewing this potential acquisition with some healthy skepticism, from a supply chain lens, it can be viewed as a bold and innovative strategy.
According to the WSJ, Delta spent $11.7 billion in 2011 on aviation fuel, roughly 36 percent of the airline’s operating costs. That certainly qualifies fuel cost as Delta’s key value-chain lever for margin improvement. Delta also has a good concentration of its operating hubs located in the U.S. east coast region, where fuel costs typically are higher than other regions of the U.S.
Delta talks with Conoco Phillips regarding the idled Trainer Pennsylvania refinery are reported to be in a price range of $100 to $150 million, the equivalent of a new wide bodied aircraft. Estimates are that if successful, Delta could save $20 to $25 per barrel on some of its aviation fuel costs by configuring the refinery for optimized aviation production while support existing buyers for other fuel products. Delta would also seek an experienced operator to manage refinery operations.
The WSJ notes that whether or not this acquisition ever comes to fruition, this might be the first airline that has ever considered owning a refinery. Supply Chain Matters complements Delta for its bold thinking on the possibilities and outcomes of vertically integrating the biggest component of its supply chain.
Process innovation can come from external or internal forces and bold thinking has been the basis of many supply chain capability breakthroughs. That sometimes implies ignoring Wall Street’s one-quarter time perspectives.
The business and supply chain management community has had time to reflect on the recent announcement of labor violations discovered by the Fair Labor Association in audits of Apple’s massive Foxconn contract manufacturing facilities. As can be expected, the responses vary in perspectives. Labor rights advocates feel that Apple’s efforts demand constant scrutiny. Other business media have opined that this development is a sign of strategic shifts or an overblown reaction to the reality of low-cost manufacturing environments such as China.
We cite three articles of particular interest.
In a Washington Post blog entry, Jena McGregor noted that the stakes for Apple are far higher than that for Foxconn. By proactively responding to working condition findings, CEO Tim Cook could face the wrath of Apple shareholders for eventually increasing supply chain costs. McGregor astutely points to far bigger stakes, namely that Apple walks a fine line by not also pointing the finger of labor abuse to other high tech competitors such as Amazon, Dell and HP who also manufacture in similar facilities within China. Supply Chain Matters expressed similar opinion months ago when the Apple’s social responsibility efforts initially became very public.
The New York Times, who managed to provoke Apple with its superb in-depth article of Foxconn working conditions has been rumored to be attempting to gain positive favor with the company. That aside, an April 1 article penned by Nick Wingfield places a rather positive spin to this development, namely the new direction and sensitivity that CEO Tim Cook has steered for Apple. According to NYT sources, Steve Jobs never visited the factories in China where Apple products were made. Conversely, Cook, who has spent a lot of time in factories, is steering Apple toward higher levels of leadership and visibility to respond to greater scrutiny by media and consumer groups reflecting on how its products are manufactured and how serious the company is committed to labor rights.
We were somewhat surprised to read a posting from Supply Chain Digest which implied that Apple’s issues related to working conditions and pay were quite modest, with the implication that this was no big deal. With all due respect, that comment completely misses the mark.
When a company like Apple is deservedly ranked number one on nearly every researcher’s top supply chain listing, the ranking comes with a high bar of expectations. We all expect Apple to set world class benchmarks in many supply chain capabilities including supplier and social responsibility. Apple may be feeling the heat, but there are many other firms dealing with the same challenges. It is a rather, big deal, one that does not provide simple solutions, and one that should not be hidden.
Today, The Wall Street Journal is reporting that Hon Hai Precision Industry, the parent of Foxconn, announced plans to “significantly” raise wages for its employees located at its headquarters in Taiwan, which is expected to take effect in July. Readers may recall that last year, when Foxconn finally announced meaningful wage increases for its assembly workers in China, a ripple effect of other cascading labor rate increases incurred throughout China’s southern manufacturing regions.
In a Supply Chain Matters commentary posted in mid-March, we provided our point-of-view that many current signs point to the need for changing supply chain strategies for Apple, some of which may be conflicting. There are a number of strategic directions to which Apple’s supply chain can shift, but any will be dependent on the business and customer outcomes desired by the company. A socially responsible supply chain may be a component of that direction, and the fallout will not just be Apple alone.
The time is long overdue for high tech and other industries to find a balance point between supply chains driven by cost and those that may also be driven by innovation and social responsibility.