Supply Chain Matters has featured multiple commentaries citing India based generic drug producer Ranbaxy Laboratories. Our latest commentaries were in a specific posting in late January and in an India based industry regulatory commentary published in February.
Thus, we were not at all surprised with this week’s announcement that Japan based Daiichi Sanko Co. the parent of Ranbaxy, has agreed to sell the generic drug manufacturer to India based Sun Pharmaceutical Industries Ltd. in a deal reported to be valued at $3.2 billion in a mostly stock-based deal. This transaction is expected to be completed by the end of the year.
The U.S. market accounts for a significant amount of Ranbaxy’s current revenues, while the U.S. Food and Drug Administration (FDA) currently bars imports from four out of five Ranbaxy production facilities in India due to inspectional findings. According to a report published by the Wall Street Journal, after a five year effort, Daiichi Sanko retreated from the expensive efforts to attempt to fix Ranbaxy’s drug-producing processes. Daiichi acquired Ranbaxy in 2008 for $4.6 billion. FDA warnings and citing’s continued throughout this entire period. The CEO of Daiichi indicated to the WSJ: “The deal will help accelerate a solution to the series of problems at Ranbaxy.”
A reflection on the broader picture, however, remains on the issue of production conditions across India based pharmaceutical facilities. A report published by Reuters points out that India’s drug inspectors are hard pressed to oversee current drug production facilities. An India based drug official indicates to the Reuters reporters that there are 1500 inspectors responsible for more than 15,000 drug manufacturing facilities. Inspectors lack vehicles to travel to sites with reports that some inspectional practices are ignored. A study carried out two years ago concluded that one in every twenty-two locally made samples was of sub-standard quality. According to the Reuters report, about 40 percent of generic and over-the-counter medicines sold in the United States originate at over 500 India based production facilities. While facilities are barred by the FDA from shipping to the U.S., they typically ship to other global locations.
A follow-up report published by the Wall Street Journal (paid subscription) quotes workers and former employees of Ranbaxy as indicating “they received little training and were instructed to keep production going, even if that meant cutting corners.” One former maintenance technician at Ranbaxy’s Toansa plant indicated that he often signed blank documents which were filled in with information later to appear that equipment has been inspected. However, the WSJ cites former and current FDA officials as indicating that Mumbai based Sun Pharmaceutical has a better reputation for quality. However, in March, the FDA barred imports from a Sun API plant in Gujarat.
On her visit to India in February of this year, FDA Commissioner Margaret Hamburg was diplomatic, indicating that a few India based drug manufacturers have been overshadowed by recent lapses in quality at a handful of pharmaceutical firms. The Reuters report seems to dispute that statement. Dr. Hamburg further indicated that officials at India’s Ministry of Health and Family Welfare share this goal and both agencies plan to work together to improve lines of communication and diligently work to ensure drug products exported from India are safe and of high quality.
With the proposed combination of Sun Pharmaceutical and Ranbaxy, the two India based generic drug producers when combined providing even more global scale, it would seem that the urgency among broader industry and India government regulators should be raised to aggressively address systemic production process issues and support strict adherence to published global Good Manufacturing Practices. Both domestic India drug consumers as well as global drug consumers expect such practices, and the reputation and brand value of India’s drug makers is clearly at stake. The Indian government is not the sole answer, rather India’s collective drug producers as a whole need to step-up their priorities.
Supply Chain Matters had the opportunity to recently attend the 2014 Crossroads Conference hosted by the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics (CTL). Crossroads is an event that began 10 years ago, and each year we look forward to attending and hearing about leading-edge trends and developments in MIT supply chain focused research and across industry supply chains.
Each year, the agenda shifts in focus and the 2014 conference featured talks on advanced and emerging research occurring among select MIT faculty members. The conference was kicked-off with a presentation from MIT Professor Suzanne Berger, principal author of the book, Making in America, From Innovation to Market. Professor Berger summarized the multi-year research conducted by the MIT Task Force on Production and Innovation. Supply Chain Matters has previously posted our summary of last year’s event that reported on the findings from the MIT PIE Task Force. None the less, the messages continue to have meaning. MIT researchers studied and interviewed over 250 manufacturing start-up firms located in the United States, Germany and China. The principle takeaways summarized by Professor Berger were:
- Industries do require close ties and integration among R&D, product design and manufacturing. The MIT researches identified a meaningful pattern of successful firms that demonstrated specialized expertise in physical manufacturing bundled with specific customer-focused services.
- Of the 250 manufacturing start-ups that were analyzed, most were able to gain funding for initial product design and concept in the first 3 years of the start-up. None were able to scale-up to full volume production in the United States because of the large dollar and process expertise investments required to scale. Industrial ecosystems that were once provided by industrial giants have moved outside of the United States, primarily in Germany and China. While 85 percent of advanced process and material research had roots in an academic institution such as MIT, most migrated to other global areas and according to the researchers and the U.S. continues to lose out on commercialization expertise. Professor Berger joked with the audience that the book could have be renamed to be “Home Alone”.
- U.S. companies have huge pressures from Wall Street for shedding overall assets and focusing on short-term vs. longer-term focused results.
- On the positive side, researchers cited existing U.S. public and private consortiums and partnerships as having a rather positive influence in providing needed expertise and infrastructure to sustain innovative manufacturers.
A rather sobering presentation, Is Cyber Security the Next Risk, was delivered by Dr. Abel Sanchez, Executive Director of the MIT Geospatial Data Center. Sobering is probably an understatement because Dr. Sanchez provided mind-blowing examples of how easy it has become for unscrupulous parties to hack corporate systems today. We are not going to cite the specific statistics in our commentary from concern that such data would become more visible. Suffice to state that the often cited statistic that 50 billion connected devices will exist by 2020 has to be factored against much stronger information security techniques. Dr. Sanchez noted that an internal experiment was conducted within MIT when a single laptop with no security controls, was connected to the internal network for a 24 hour period. A visualization representation of the specific attacks that occurred from all parts of the globe on that single laptop in just that 24 hour period was sobering. Dr. Sanchez’s observation was that for the most part, corporations are not allocating sufficient attention or resources to address information security. Sanchez further pointed to the recent massive credit card security breach that occurred across Target retail stores as a potential benchmark for ascertaining corporate, government and personal security responsibilities.
Other highlights of the 2014 Crossroads event included a presentation from Professor Julie Shah of the MIT Interactive Robots Group depicting factories of the near-future, where robots and humans will work together interactively on flexible work sequencing and scheduling of assembly tasks. The next-generation of robots will be responsive to high-level guidance from humans, and Prof. Shah outlined how assembly work can be coordinated among multiple robots in the not too distant future in applications such as aerospace, automotive or consumer electronics assembly manufacturing. MIT Self-Assembly Lab Director Skylar Tibbits provided insights into 4D Printing application concepts, where the emphasis shifts from the printer to essentially programmable, super high density or molecular “smart” materials which form desired shapes based on individual material properties. In his overview, Tibbits described the notion of materials that can assemble or repair themselves in application areas such as aeronautics, medical devices, pharmaceuticals and other area in the coming 5-10 years.
As always, Crossroads was a thought provoking conference focused on the future concepts of supply chain technology and processes.
Boeing has announced the results of new commercial aircraft delivered in the first quarter, declaring the deliveries rose 18 percent from year earlier results. That headline seems to be somewhat of a misnomer.
First quarter 2014 deliveries included 161 commercial aircraft compared with 137 in Q1 of 2013. The misnomer is that all operational and in production 787 aircraft were in a grounded condition a year ago pending FAA investigation of suspected lithium ion battery fires, thus a comparison to last year’s Q1 has little meaning. Boeing re-started 787 deliveries in early May of last year.
Boeing delivered 18 new 787’s in Q1, a shortfall of the company’s planned 10 aircraft per month goal. That compares to 25 new 787’s delivered in Q4 and a continued sign of production and other supply-chain problems associated with the Dreamliner. On the positive side, Boeing delivered an incredible 115 new Next Generation 737 aircraft in Q1.
Supply chain glitches or issues involving the 787 have been ongoing. In early March, there were reports that inspections were being conducted for suspected hairline cracks on 43 yet to be delivered Dreamliner’s because of potential flaws in a manufacturing process concerning supplier Mitsubishi Heavy Industries. In late March, the FAA issued its fourth airworthiness directive involving the 787-8 model, ordering an immediate fix to aircraft containing certain General Electric power plants where a suspected software glitch could cause the engine to lose thrust when close to landing. There have been other reports indicating that Boeing has experienced some difficulties in ramping-up overall production volumes at its Charleston South Carolina final assembly facility, prompting a hiring surge to augment the existing workforce there.
Currently operational 787’s with GE engines are cautioned not to fly through severe thunderstorms after reports of some ice build-up incidents. In early February there was a report that Boeing was continuing to pressure suppliers for cost concessions and one major supplier, Sprit Aero Systems reported significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the 787.
Boeing’s stated goal for 2014 is to deliver 110 long overdue Dreamliner’s to airline and leasing companies, roughly 27-28 per quarter. Q1 was obviously not what the 787 supply chain ecosystem wanted in performance and bar has risen for Q2 and the remainder of the year.
In an era of high customer expectations and pay for operational performance, Boeing needs to quickly shift its 787 supply chain objectives from cost control to achieving and maintaining reliable delivery and operational performance for airline customers.
In January of 2013, The U.S. Federal Aviation Administration (FAA) announced a thorough formal review of Boeing’s 787 Dreamliner aircraft after a series of incidents, including electrical fire incidents in both Boston and Japan occurred. Supply Chain Matters readers are well aware that the 787 has been the subject of multiple commentaries on this blog.
This week, the FAA finally released the results of that study.
The review team consisted of a team of engineers and inspectors from both the FAA and Boeing. The report indicates that the 787 is soundly designed and that processes exist to identify and correct manufacturing issues. Media coverage has cited a specific report statement: “The global fleet’s reliability during the first 16 months of service was comparable to previous new Boeing models.” We suppose you can interpret that statement in a number of ways but from our lens, it does not seem to reference an industry-wide benchmark of reliability metrics for newly introduced aircraft.
Several recommendations and some concerns were also put forward in this report. The FAA was cited for relying too much on Boeing to ensure the safety of the 787 design and manufacturing processes. The Wall Street Journal reported that Boeing senior executives acknowledged that they lost some control of the manufacturing process because of the nature of the global supply chain, and placing too much reliance on suppliers for the overall quality of 787 components and systems. The most comprehensive coverage we found was a report filed by The Seattle Times which provides broader insights from the FAA report. One statement cited was: “in some cases complete and accurate design requirements did not flow down from Boeing to its primary supplier and then to involved subtier suppliers” resulting in “communication and verification issues along the supply chain.” Boeing’s sometimes ambiguity in stating what was required of partners led suppliers to believe that they had met requirements.
From our lens, that translates to a lack of continuous two-way information linkages from design and product management to manufacturing and value-chain partners.
Another recommendation reported is that the FAA must step-up oversight of foreign and “high-risk” subcontractor facilities to insure that suppliers are fully aware of their responsibilities.
Hmm… are all the above statements consistent with a theme of throwing suppliers “under the bus”?
Supply Chain Matters has not as yet had the opportunity to dive into the FAA report and we will reserve any other direct observations or viewpoints until we can do so. However, there seems to be a very consistent pattern from Boeing regarding overall supplier management.
The detailed report can be downloaded from this FAA web link.
We welcome comments from readers residing in multiple tiers of aerospace supply chains on how they perceive these recommendations.
General Hospital Has Been Cancelled! – A Need for Renewed Emphasis on Healthcare Supply Chain Management
A Supply Chain Matters Guest Contribution from Rich Sherman
So you think that Obamacare is changing the healthcare industry in the United States? Think again.
It’s just the tip of the iceberg. The healthcare industry is undergoing a fundamental transformation from delivering patient treatments to delivering patient outcomes. And, it’s turning the industry upside down. The television series General Hospital may have celebrated its 50th anniversary last year; but, in real life General Hospital is about to be cancelled.
With the transformation to patient outcomes, healthcare providers simply can’t afford to treat anything generally. Specialty patient outcome centers (SPOC) are emerging throughout the healthcare industry. With nurse practitioners having expanded diagnostic and treatment licensing, general health clinics are appearing in every corner drugstore, 24/7. Emergency treatment and diagnostic centers are emerging in every strip mall. SPOCs, such as oncological, cardiac, ophthalmic, orthopedic, cosmetic, etc. for every ailment are emerging in every city. Quite simply, patient care centers are appearing and proliferating across the country increasing the cost and complexity of healthcare supply chain management as well as operations management in general.
Consider that it is not unusual for supply chain costs to consume 35% or more of the operating budget of a healthcare facility.
Supply chain management is a new term to most hospital and healthcare administrators. Haven’t they got enough on their plate with compliance, reimbursement, Electronic Medical and Healthcare Records (EMR/EHR)? Yet, with the transformation in the industry, administrators have to be more focused on revenue and cost. Effective supply chain management addresses both and healthcare providers have to consider bringing on a new breed of supply chain professionals to their leadership team even to the extent of hiring a Chief Supply Chain Officer. Most other industries are recognizing the significant contribution supply chain excellence makes to the financial health of the organization.
Transforming from materials and procurement management to supply chain management requires a more holistic view of the organization’s operations. Beginning with demand generation, acquiring patients to generate revenue, through demand fulfilment, delivering a successful patient outcome, supply chain management is the support system that enables cost effective, high quality delivery. And, it’s not optional. With the proliferation of patient delivery locations, competition for revenue is heating up. We’re finding more and more of our clients are seeking help in attracting patients just to maintain occupancy and revenue. But, that’s just treating the symptom.
The cure is to be found through providing a successful outcome for operations excellence. Operations excellence requires professional operations management. Medical professionals have to focus on patient outcomes not operational outcomes. This will create a transformation in the leadership structure of many healthcare providers from medical leadership to management leadership. The days of doctor controlled operations are waning. Healthcare providers that are restructuring their organizations for effective supply chain management will lead the way as the industry transformation continues.
General Hospital may be cancelled; but, the requirement for delivering successful patient outcomes will never end.
About the Author: Rich Sherman is an internationally recognized researcher and author on trends and issues across supply chain management. He currently serves as a Principal Essentialist at Trissential LLC in their supply chain consulting practice. His book Supply Chain Transformation: Practical Roadmap for Best Practice Results (Wiley, 2012) has received praise by practitioners, academics, and non-supply chain executives as a great read on business transformation. Rich has been a previous guest contributor to Supply Chain Matters.
Yesterday, President Obama continued in his intentions to make 2014 a year of action, in spite of political stalemate in the United States, by announcing two new public-private manufacturing innovation institutes.
According to the White House Blog, one will be located in Chicago and the other in Detroit. The goal is to have each of these institutes to serve as a regional hub for bringing together efforts from universities, government and private industry for applied research and product development. The White House terms these institutes as a “teaching factory” where manufacturers, large and small, students and workers of all levels can access advanced manufacturing processes and equipment.
The Lightweight and Modern Metals Manufacturing Innovation Institute headquartered near Detroit will pair 34 aluminum, titanium and high strength steel manufacturers with universities and laboratories pioneering technology development and research. The Digital Manufacturing and Design Institute headquartered in Chicago will spearhead a consortium of 73 companies, along with universities and other research labs in areas of enhanced digital product lifecycle management capabilities including additive manufacturing and 3D printing techniques.
The President’s goal is to eventually create 15 Manufacturing Innovation Institutes across the United States.
The President further announced a new competition for an Advanced Composites Manufacturing Innovation Institute, to be led by the Department of Energy, which will award $70 million over five years to improve U.S. manufacturing abilities in advanced fiber-reinforced polymer composites for use in clean energy products.
In the lens of Supply Chain Matters, each of these new institutes are examples for the potential of positive partnerships among private industry, government and universities. They can serve as added impetus for the ongoing renaissance of U.S. manufacturing. While President Obama addressed these ongoing initiatives in the context of manufacturing jobs, our community knows darn well that manufacturing is supported by vibrant value-chains and ecosystems of suppliers and services providers. It is all about re-building a competitive and vibrant collection of industry supply chains that can compete on a global scale.
While on the topic of supply chain, U.S. Transportation Secretary Anthony Foxx, in a recent speech before the U.S. Chamber of Commerce, again urged Congress to refrain from past practices for funding short-term transportation and infrastructure projects and move toward a longer-term window of strategic investment in U.S. transportation infrastructure needs. The Secretary reminded the audience that The American Society of Civil Engineers estimates that the overall infrastructure renewal needs for the United States are $3.6 trillion by 2020. That addresses needs other than bridges, roads and transit. The Secretary urged Congress to think out of the box on methods to fund infrastructure needs, other than the traditional fuels tax. It seems obvious that current trends of greater fuel economy among trucks and automobiles leads to less fuel consumption, hence there needs to alternative forms of funding for these needs. Perhaps this is another area for potential private industry and government partnerships. With the current resurgence in U.S. manufacturing and energy products export activities, logistics and infrastructure needs cannot be ignored.
We say amen to all of these efforts, they are all long overdue.
What’s your viewpoint?