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India’s Drug Manufacturing Regulators Reach Out to the U.S. FDA

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Supply Chain Matters provides an update to our previous commentary concerning the latest citations from the U.S. Food and Drug Administration (FDA) concerning India based generic pharmaceuticals producer Ranbaxy. In addition to Ranbaxy, India based producers Wockhardt and Strides have also been cited for failures in compliance to good manufacturing practices.

Last week on her first visit to India, FDA commissioner Margaret Hamburg declared on her blog that lapses by a few select drug makers within India have clouded good manufacturing practices followed by other producers in the country. The commissioner noted: “Ensuring that the products distributed in the United States meet our requirements for product safety and quality is among my top priorities as Commissioner. Unfortunately the many Indian companies that understand good manufacturing and quality processes have been overshadowed by recent lapses in quality at a handful of pharmaceutical firms.” Dr. Hamburg further indicated that officials at India’s Ministry of Health and Family Welfare share this goal and both agencies plan to collectively work together, including a first ever, statement of intent, to improve the lines of communication and work diligently to ensure that the products being exported from India are safe and of high quality.

Dr. Hamburg’s visit was well timed and garnered significant press coverage within India, including The Economic Times. India’s legislative and regulatory leaders have hopefully internalized the need for stepping-up standards in drug manufacturing among the chosen few who reflect negative perceptions on the remainder of drug producers across the country.

Another Supply Crisis Across Pharmacuetical Supply Chains

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There is yet another supply shortage occurring in pharmaceutical supply chains.

A combination of factors including a heightened flu season and supply imbalances have precipitated an apparent severe shortage of intravenous saline solution commonly used to hydrate patients being treated for dehydration and other symptoms. Reports indicate that hospitals and healthcare providers are managing short supplies by administering these fluids to only the most seriously ill patients.  The U.S. Federal Food and Drug Administration (FDA) is involved in helping to alleviate the current shortage.

Producers Baxter International, Hospira and B. Braun Medical are stepping up production volumes to respond to the current shortage. According to an FDA spokesperson, manufacturers first notified the FDA late last year that they expected delays in filling orders, but an increase in hospitalizations two weeks ago partly due to rising numbers of flu cases has exacerbated the problem.

To cope with the shortage, healthcare providers are using substitute oral hydration products.

According to a Reuters syndicated report, a quote from a registered nurse with Novation, a supply chain company that works with hospitals and other healthcare providers indicates that it could be another two months before the current shortage is resolved. The FDA is also looking into alternative international supply sources to resolve the current shortage.


Increased Troubles for Generic Drug Producer Ranbaxy

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India based generic pharmaceuticals producer Ranbaxy is once again under U.S. Federal Drug Administration (FDA) scrutiny after a visit inspection of a northwestern India production facility. The FDA banned from the U.S. market the use of drug ingredients originating from Ranbaxy’s Toansa India facility.

Readers residing in pharmaceutical supply chains are probably quite familiar with Ranbaxy and its ongoing challenges in insuring adherence to good manufacturing practices. As far back as 2008 the FDA of more than 30 generic type drugs manufactured by the India based drug maker, one of the world’s significant producers of generics. In 2012, the FDA initiated increased regulatory powers forcing Ranbaxy to halt production of the generic of the highly prescribed cholesterol drug Lipitor while it investigated tiny glass particles found in production batches and other discrepancies. That resulted in a consent decree involving the U.S. Justice Department requiring the company to take steps to insure the integrity of production at three production plants within India.

Now there are reports that on a recent FDA inspection visit, Ranbaxy workers at the Toansa India facility were discovered to be repeatedly altering test results to make it appear that active pharmaceutical ingredients (API) met required standards when they didn’t. According to a Wall Street Journal report, FDA inspectors discovered workers retesting “until acceptable results are obtained” and “deleting evidence of failed tests.” Inspectors were also reported as finding significant disrepair at the plant’s analytical and microbiology laboratories with windows that could not close and a sample preparation room laden with flies. Inspectors also reported to have found evidence of backdating lab results.

The WSJ also characterized this latest action as a serious blow since the Toansa facility supplies many critical ingredients used in Ranbaxy’s generic drug manufacturing including fenofibrate, a drug used to reduce fatty acids in blood to boost good cholesterol as well as valacyclovir which is used to treat shingles and genital herpes. Japanese drug maker Daiichi Sankyo, which now owns upwards of 60 percent of Ranbaxy has dispatched experts to India to help in determining a solution to the ongoing situation.

While these latest actions add more challenges for Ranbaxy and its new owner Daiichi Sankyo, it could add further impacts to already stressed generic drug supply chains. Increased health insurance scrutiny and subsequent regulations on the part of multiple governments has added increased pressures on the industry and generic drug manufacturers, under constant pressure for reduced pricing and more supply.

Gartner Announces its Top 25 Healthcare Supply Chain Rankings

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Supply Chain Matters is back after some technical downtime as our office Internet equipment failed over the Thanksgiving holiday.

Last week, Gartner announced its fifth annual rankings of its 2013 Healthcare Supply Chain Top 25.  Five years ago, Gartner decided to rank healthcare related supply chains in a separate exercise than its well-known top 25 manufacturing and retail oriented supply chain rankings. The separate ranking accomplishes two purposes. The first is recognizing the unique supply chain fulfillment capabilities required to compete in the healthcare industry. The second is the proverbial sales and business development aspects for attracting more healthcare clients to Gartner.

For the third consecutive year, Cardinal Health tops the current ranking, garnering top weighted opinion from both industry peers and Gartner analysts. The cited top five healthcare supply chains for 2013 are additionally made-up of:

2. Mayo Foundation

3. Owens & Minor

4. Intermountain Health Care

5. McKesson

In its announcement, Gartner acknowledges that industry consolidation continued to occur in 2013 as healthcare companies continued with M&A activities. At the same time, it is no secret that healthcare supply chains are the most complex, requiring lots of needed improvements to meet current capabilities exhibited by other industries. Noteworthy for this year’s rankings

In the category of surprises was the rapid climb of McKesson, moving from the number 12 ranking in 2012 to the top five, despite a lower opinion from Gartner analysts. It is noteworthy since a ten year industry alliance announcement earlier this year concerning Walgreens, Alliance Boots GmbH and AmerisourceBergen directly impacted McKesson’s distribution revenues. Supply Chain Matters further noted that in 2012, Pfizer had moved up six spots to number 13, and in the current year was ranked #11, just outside the top ten. This is despite a lower weighted industry peer opinion, coupled with 2012 inventory turns of just 1.6. However, Pfizer garnered the second-highest weighted opinion from Gartner analysts. Our commentary would not be complete without again noting that Johnson and Johnson remains ranked as the number 7 supply chain despite its continued challenges with product recalls and quality issues.

Tip of the HatSupply Chain Matters extends it congratulations and its tip of the hat  recognition to all the healthcare supply chains cited in this year’s Gartner 2013 Healthcare Supply Chain Top 25.

A Supply Chain Matters Commentary Regarding Inventory Performance Trending

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Since our founding, we have always looked forward to the annual REL Working Capital Scorecard, and specifically its reporting of inventory performance.  We have provided Supply Chain Matters readers our observations and insights that were related to reported performance in individual industry sectors.

The data was collected by REL, which is now a division of The Hackett Group, and published each year in CFO Magazine. These indices, particularly the calculation of the metric Days Inventory Outstanding (DIO), are rather important because they reflect a generally accepted method for how CFO’s measured their supply chain inventory performance. While many in the supply chain community have adopted and are very comfortable with inventory turns calculation methods, DIO is, in our view and others, a broader financial indicator of inventory performance contrasted to annual sales trends. DIO reflects if inventory management is tracking to revenue performance, and that interests the C-Suite, stockholders and the Wall Street community.

Since CFO Magazine discontinued its sponsorship of the REL Scorecard, Supply Chain Digest took the initiative this year to actually perform the DIO calculations based on raw data supplied by REL.  A few weeks ago, Dan Gilmore issued a two-part commentary providing his analysis of 2012 inventory performance which our readers can review. Supply Chain Matters provides a shout-out to Dan and his editorial team for undertaking this calculation task and allowing our community to once again review performance. 

Gilmore discovered that the previous industry grouping categories were somewhat misaligned.  We also have been observing that since we began reviewing the annual reporting.  Gilmore further points out that mergers, acquisitions and private equity deals make the continuity of the industry groupings difficult to pin down. We speculate that the previous CFO Magazine industry groupings were formed to insure that readers in those industries would not rebel when reviewing specific industry results.  Supply Chain Digest was able to provide a DIO inventory performance view that spanned the years 2006, 2011 and 2012.  We reviewed our files and were able to review published data from 2008, 2009 and 2010.  Although we noted that there are problems in the continuity of the trend reporting, the numbers do provide important trend indicators.

An observation and insight we do want to share reflects on the marginally performing industry sectors, those whose performance reflects an increase in inventory when compared to revenue trends. A snapshot of the 6 year DIO inventory performance as reported by Supply Chain Digest reflects:

Construction Equipment                                                 58.4 percent increase

Chemicals and Gases                                                        27.2 percent

Metals Manufacturing and Distribution                      19.5 percent

Retail- Electronics and Home Improvement              12.5 and 11.6 percent respectively

Auto Parts and Components                                           12.7 percent

Toy Manufacturing                                                           10.2 percent

Apparel and Shoe Manufacturing                                  7.2 percent

Auto-Truck Related OEM’s                                             4.2 percent

Computers and Peripheral Manufacturing                  3.2 percent


Can you spot a common denominator?

Most of these industries plunged big-time into global sourcing and distribution of products and were subject to global economic developments, supply chain disruptions and slower transport times.  In 2011, the automotive and high tech sectors were significantly impacted by supply chain disruption. Apparel and toys have been forced to deal with exploding direct labor costs in China, and have since altered some sourcing of production. On a positive note, Consumer Packaged Goods, which also plunged into global markets, demonstrated a 7.3 percent decrease over six years.

We share one other comment regarding Aerospace and Defense Components, which according to the analysis had a 30.1 percent increase in DIO over 6 years. This should really not be all that surprising, given the multi-year delays encountered in the major new aircraft programs from both Airbus and Boeing that overlapped this period.  If there were a need for definitive evidence on the impact of these delays, particularly on aerospace component suppliers, it would be reflected in this DIO trending.

Despite all the technological and process advances in supply chain planning and inventory management, business factors often complicate overall supply chain inventory management.  It is not so much a reflection on the technology, but rather the implications of globalization and increased supply chain complexity and disruption.

What is your view?

Reviewing this six year trending data on inventory performance, along with your experience in having to manage inventory in these specific industries, do you believe that external business forces have been the real challenge?

Bob Ferrari


Johnson and Johnson More Transparent in its Supply Chain Transformation Efforts

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Dedicated readers of Supply Chain Matters are very aware of the many commentaries we have posted over the last three years regarding Johnson and Johnson.  A series of multiple product recalls dating back to 2009 involving a significant amount of the company’s over-the-counter medicines uncovered what appeared to be systemic process and other issues that reflect directly on its supply chain. It also forced the temporary closure of an entire production facility and the company being slapped with a number of consent decree findings from the U.S. Food and Drug Administration.  Readers can refresh their knowledge by reviewing some select Supply Chain Matters postings:

Another Product Recall Involving Johnson and Johnson

Johnson and Johnson Making Progress in Addressing Previous Product Quality Issues

Another Set of Product Recalls and Challenges for Johnson and Johnson


Much has occurred in this period, and yesterday, during the J&J’s formal earnings briefing with equity analysts, a lot more behind the scenes details were shared regarding efforts to address J&J’s supply chain business process and information technology challenges.

Joining J&J’s Chairmen and CEO Alex Gorsky on yesterday’s briefing was Sandy Peterson, Group Worldwide Chairman. Ms. Peterson joined J&J seven months ago in December 2012, shortly after Gorsky was appointed CEO of the company.  Her prior credentials were chief executive officer of Bayer CropScience AG in Germany and other senior leadership roles in healthcare systems and consumer product goods companies, including leading procurement activities for Nabisco. She was obviously recruited for specific leadership skills.

Readers may recall our previous commentaries related to senior executive changes made at J&J after the initial product recall crisis, particularly those involving the company’s consumer and OTC product businesses.  Of major significance, in addition to being the newly appointed head of J&J consumer businesses, Peterson has leadership responsibilities for both company-wide supply chain and information systems efforts.  That is a significant change from the prior structure, one that by our view, will help to bring accelerated change efforts for the company.

In the earnings briefing, CEO Gorsky specifically called on Ms. Peterson to update analysts on the progress that has been made in the three areas of her responsibilities. She began her briefing by noting that she has spent considerable time since joining on visiting and speaking with customers and visiting a number of global-wide production and other facilities, including those in emerging markets. She emphatically stated that her organization’s goal is to restore a reliable supply of U.S. OTC products, and by the end of 2013, J&J plans to deliver consistent supply of 75 percent of product brands previously suspended from production.

Of more significance, Ms. Peterson outlined the overall scope of the challenge inherited. Supply chain scope was described as over 120 manufacturing sites, 500 external contract manufacturers and 450 distribution centers.  She indicated that there were 60 different ERP systems supporting 275 operating companies. That is a mind-blowing statistic but perhaps common for a global-based pharmaceutical and healthcare company that is vested in aggressive growth via acquisition.

Five priorities were outlined for U.S. OTC products:

1.      Deliver on FDA consent decree milestones

2.      Ensure reliable supply of OTC products to retailers and consumers

3.      Achieve brand leadership

4.      Rebuild customer trust including top retail customers

5.      Execute a return to market plan for core U.S. brands and SKU’s

In terms of organizational progress, J&J began to centralize its supply chain efforts over three years ago.  That effort continues with the new singular leadership model. The company has plans to evolve a supply chain model that will leverage a global network in sourcing, logistics, transportation and distribution management.  Best practices are being shared among and across various business entities. Readers who reside in centralized supply chain teams may view the above as a no-brainer, but consider that supply chain best practices are often not the priority of large pharmaceutical and healthcare companies.

In the area of overall quality, the J&J goal is to have one quality and compliance operating model. Teams are incorporating the new quality and compliance operating model across all products and geographies, while strengthening oversight with supplemental internal audits. Thus far, the company continues to deliver on all planned milestones outlined by the FDA.  Ms. Peterson described a rigorous review of external suppliers which has led to a consolidation of external manufacturing by a third. 

In the systems area, a four year program has been outlined to consolidate the overall systems landscape.  Business continuity planning is also being actively addressed, and we witnessed evidence of that in the recently held Supply Chain Council’s Supply Chain North America conference.

One of the core goals of Supply Chain Matters is to provide readers education, not just to a single event or development, but to the continuity of events and the subsequent learning.  In the case of J&J, our commentaries have evolved from sharing frustrations related to signs of organizational paralysis and significant evidence of deep systemic supply chain issues, to now being able to comment on meaningful leadership and progress in remediation. An improvement framework addressing People, Process and Technology factors is now defined and ongoing.  Make no mistake, significant work remains and active executive leadership and commitment is essential.

The events surrounding J&J these past months will no doubt become the basis of new case study in business schools and supply chain circles.  The numerous occurrences of product recalls reflected other significant supply-chain wide issues that needed to be addressed across multiple business units. J&J has obviously reached-out to seek external advice and assistance. The work across J&J will obviously continue and we trust that more positive outcomes will unfold in the coming months.

Readers residing in Pharmaceutical, Medical Products and Life Sciences industry settings should take special note of how a lack of understanding on the overall importance of consistent and reliable supply chain practices can lead to negative business outcomes.   Once more, consider the length of time outlined to remediate and transform the existing supply chain. If supply chain cross-functional and IT teams were in need for evidence on the importance of consistent practices and responsive information technology tools, they can cite the ongoing J&J case study.

Supply chains do matter, especially for this regulated industry.

Bob Ferrari


© 2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

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