Many past accolades have been written and cited regarding Apple’s supply chain capabilities including recognition in most any industry analyst’s top supply chain ranking, including our own at Supply Chain Matters.

If you have not been keeping-up of late, Apple has entered, perhaps not to its liking, a fairly new phase of global-wide visibility to its supply chain capabilities. The current phase can best be described as a phase driven by public relations and perception, one that will once again challenge Apple’s internal supply chain management teams.

The watershed events leading to this current phase were triggered by two media events.  One was Apple’s January announcement of a more aggressive stance in supplier social responsibility standards, and the other was a rather revealing and candid article published in the New York Times revealing Apple’s certain production and supply chain practices which was not complimentary.

Since that time, Apple’s senior executive and public relations team have been hard at work depicting two sides of Apple’s corporate culture.  The first is one that protects the Apple brand for innovation and corporate responsibility.  The second is the ability to exercise corporate name and power to influence whom in traditional and social media Apple deems to grant access and visibility.

A recent blog posting penned by Wall Street mogul Henry Blodget on the Business Insider blog speculates that instead of thanking the Times for focusing attention on why so many high tech and consumer electronics companies have no choice but to deal with the implications of supply chain sourced in Asia, Apple has been  retaliating by offering competing traditional media outlets like the Wall Street Journal, or blogger friendly outlets like John Gruber’s blog, increased access to Apple senior executives for interviews. The takeaway conclusion is noted as access journalism.

The newest chapter comes tonight in the U.S., when an ABC News’s Nightline broadcast will air what is hyped as an unprecedented glimpse inside the contract manufacturing facilities of Foxconn.  Reporter Bill Weir has penned a fairly revealing perspective of what will be aired on tonight’s program. Weir provides the context for the invite to ABC News as a direct invitation by Apple to actually observe Foxconn final assembly lines as the Fair Labor Association (FLA) conducts its first ever audit of Apple’s supplier responsibility practices. Weir questions the fact that ABC News is owned by Disney Corporation and Disney CEO Bob Iger serves as a member of Apple’s board of directors.

Readers will note Weir’s statement that Apple promised complete access to factories, but denied repeated requests for interviews with either Apple CEO Tim Cook or senior vice president of industrial design, Jony Ive.  The remaining commentary provides eye-popping admissions that reveal how past events have led to Apple having no choice but to increase its oversight of supply chain working conditions.

Sound bites that are sure to resonate from tonight’s airing include the statement that Foxconn’s production campus “employs 235,000 people, roughly the population of Orlando Florida. “  That should hit a sour chord with current U.S. unemployed high tech workers. He notes that during the recent wave of worker suicides that occurred on Foxconn’s campuses, Tim Cook rallied a team of psychiatric experts for advice for dealing with this situation.  Readers may recall that recently the Times expose noted that Tim Cook secretly traveled to Foxconn for first-hand meetings.  There are many more revelations, but , in our view, probably the most revealing are stated quotes from FLA audit inspector Ines Kaempfer.  In the context of Apple’s decision to join and engage FLA in what is reported to be a six figure cost, Kaempfer states: “We call it the ‘Nike moment’ in the industry.  There was a moment for Nike in the ‘90s, when they got a lot of publicity, negative publicity.  And they weren’t the worst.  It’s probably like Apple. They’re not necessarily the worst, it’s just that the publicity is starting to build up. And there was just this moment when they just started to do something about it. And I think that’s what happened for Apple.”

Weir concludes his preview by replaying the  video interview with a production worker as he pulls out his personal iPad and shows photos of his children in America. He asks that worker: “For all the people in America who buy one of these, what do you want them to know about you?”  The reply is impactful: “I want them to know we put a lot of effort in this product so when they use this please use it with care.”

Thus by this airing tonight and the observations and impressions made by viewers, Apple is indeed orchestrating a new and far more visible perspective on its global supply chain.  This is a perspective not as Supply Chain Matters has previously penned as managed by extraordinary supply chain business process, procurement strategy or advanced technology.  It is one that will come from global consumer perceptions of the labor and supplier social responsibility practices within Apple’s supply chain.

The open question for Apple’s supply chain management community is how to manage in a public relations vs. overall improvement framework context.  Tune in tonight and share your own perspectives and observations.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

The most valuable company in terms of stock price, and the most admired in terms of depth of supply chain capabilities is once again priming traditional and social media channels to hype the next new product release.  According to numerous entries, Apple is expected to announce the next generation of its iPad tablet sometime in March.  Rumors and other reporting indicate that the next generation if iPad will operate on a 4G network platform and will feature even finer screen resolution among other enhancemenrts.

Of more interest to our community is a report published in today’s Wall Street Journal (paid subscription or free metered view) which notes unnamed Apple suppliers as indicating that the goliath of consumer electronics is prototype testing a new tablet computer with a screen size of around 8 inches.  The WSJ reports that Apple is working with display suppliers AU Optronics and LG Display Co. to supply the test panels and to later qualify a volume supplier. The significance of a far smaller iPad screen revolves around a potential lower cost offering to counter two other tablets , the Amazon Kindle Fire  and Barnes and Noble Nook Color.

Our Supply Chain Matters previous commentaries on the battle of the tablet wars has pointed out the significance of lower price and leveraging higher volumes of tablets as a means to gain a platform for future sales of higher margin electronic content.  Just like smartphones, this is a battle for numbers of installed devices that can be leveraged for future products and services.  As such, competitors such as Amazon are willing to forego little or no profit on its Kindle Fire tablet in order to build a longer term value platform.

The obvious question surrounding these rumored pipeline developments now relates to how serious Apple wants to compete for the hearts and minds of price conscious tablet consumers by pricing a smaller screen version tablet as a serious competitive alternative to current lower cost offerings.  Also, is Apple willing to forego its current fat and highly profitable product margins to enter a battle of volume. Will Apple change or alter its current supply relationships?

We believe that the bigger prize lies in emerging markets such as China and India, and other growing regions where pent-up demand for a price affordable tablet computer with high brand recognition is most lucrative.

What happens next is something for all of us to observe.  Suffice to state that Apple’s next challenge for growth lies in emerging markets where the economics are somewhat different and where cost has much more meaning.  Apple’s supply chain inherits yet another challenge.

Bob Ferrari

©2012, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

Supply Chain Matters provides yet another update regarding our ongoing series of commentaries as to why pharmaceutical and drug supply chains are failing to deliver reliable and life-saving supplies to doctors, hospitals and patients.

The specific problem concerns generic, injected drugs which are utilized in chemotherapy and other life-saving treatments and the shortage supply situation is getting more critical with each passing day.  It unfortunately remains rather clear that for this category of necessary life-saving drugs, supply chains are failing, and the reasons are becoming much more visible.  The time for industry action remains long overdue.

For background, readers can reference our previous updates by clicking on the following web links:

Initial commentary

Commentary Two

Commentary Three

Commentary Four

Commentary Five

Probably the most visible aspect of this problem concerns the ongoing global shortage of Doxil, a generic injectable drug utilized to treat ovarian cancer in women. The drug itself is marketed and distributed by an operating division of Johnson and Johnson, but the production of this critical drug was contracted to Ben Venue Laboratories, a subsidiary of Boehringer Ingelheim.  Significant ongoing production quality problems that occurred at the Ben Venue production facilities in Bedford Ohio forced the complete voluntary shutdown of that facility pending the need to reconstruct a new wing of the facility.  According to the U.S. Food and Drug Administration, plant personnel failed to investigate more than 1,200 microbial contaminants over a 14-month period which presumably led to this situation.  A recent posting on FDA News.com notes that the full resumption of production at Ben Venue’s plant will not take place for another nine months as reconstruction of a new wing continues.  Meanwhile, the CEO of J&J has indicated to press and analysts that the company continues to seek other production alternatives, but also cautions about an extended shortage for the remainder of 2012. As we have noted in all of our previous commentaries, Doxil is not the only problem, and a discernible trend involving multiple generic injectable drug supplies is evident. The American Society of Health System Pharmacists reported shortages of 251 drugs in 2011, mainly generic injectable medications.

To add more credence to major symptoms of this problem, an article published in the Twin Cities Pioneer Press notes that according to FDA, nearly half of the existing shortages stem from quality problems at manufacturing facilities. Manufacturing and shipping delays, as well as shortages of active pharmaceutical ingredients, explained another 25 percent of shortages. Business decisions by manufacturers to halt production were factors in 8 percent of cases.  Experienced sourcing and operations management teams can easily conclude that over 75 percent of current problems are traced to supplier related operational effectiveness and quality processes.

One of the more insightful perspectives regarding this ongoing situation comes from a commentary penned by Catherine de Fontenay, Associate Professor at the Melbourne Business School in Australia. In this commentary, Risky Business: the human cost of outsourcing drug production, Fontenay rightfully concludes that many of the current shortages can be attributed to a classic problem involving other industry supply chains, that being outsourcing strategies.  The problem however is more acute since the production of these drugs is far more specialized and expensive, while capacity has become extremely tight. She notes: “For more traditional (non-biological) drug lines, the motive is cost-cutting. In-house production facilities do not always feel the same pressure to keep costs down as do external suppliers. With large drug batches, the pharmaceutical company can play several contractors against each other, and get very good prices.”  Professor De Fonternay also observes: “After a decade or so of outsourcing, one could argue the core competencies of pharmaceutical companies are now research and development, helping drugs through the regulatory approval process, and marketing, rather than manufacturing.”

That is a rather significant statement and more to the core of today’s problems. Certain pharmaceutical providers have concluded that operations and supply chain oversight are best outsourced under the umbrella of cost avoidance.  Rather than invest in increasingly more expensive in-house owned production and quality monitoring processes, outsourcing to contract manufacturing providers provides more favorable financial options.  The concept is similar to the semiconductor industry, where expensive owned fabrication facilities became too cost prohibited in favor of today’s outsourced fab facility.  Unfortunately, the pharmaceutical industry has far more quality and human health considerations.  Supply chain risk, namely having only a single source of global production, is another apparently overlooked consideration, as J&J has discovered.

As the current shortages continue into 2012, unscrupulous and unconscionable grey market operators take advantage of the supply and demand imbalance by offering hospital pharmacies outrageous pricing and highly questionable supplies. Supply Chain Matters praises the ongoing efforts of hospital and cancer treatment pharmacy teams in their extraordinary challenges to find safe and adequate supplies of these life-giving drugs.

More importantly for all of us as a global citizenry, patients continue at-risk.  Certain pharmaceutical supply chains need immediate fixing.  Procurement and sourcing teams no doubt have foreseen these problems occurring. The time for investing in production and supply chain related operational controls and balanced sourcing is way overdue.  If the industry deems that outsourcing continues to be a viable strategy than procurement teams need to be supplemented by experienced operational management and regulatory control resources. Conversely, if the industry feels that outsourcing to global regions where regulatory controls are less burdensome, than there will be more issues to deal with. Our view is that there needs to be a risk balanced strategy to assure continuous supply and lack of supply disruption.

One thing is certain. If the industry continues to not feel or demonstrate an overt sense of urgency, then government agencies should do all in their power to demand that sense of urgency.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

In conjunction with Oracle’s JD Edwards Summit being held this week in Broomfield, Colorado, Oracle has announced a second phase of mobile access applications that are being made available for the specific JD Edwards EnterpriseOne applications suite.  These include:

• Mobile Requisition Self Service Approval – designed to provide real-time transaction processing access for the review, approval or rejection of requisitions.
• Order Approval Mobile Purchase – Helps enable mobile workers to review and approve purchase orders regardless of physical location.
• Mobile Sales Inquiry – Addresses the needs of sales representatives, service technicians and managers by providing access to sales orders, item availability and item base price on-demand.

Each of these applications will now support smartphone enablement to include the Apple, Android and Blackberry specific platforms.

Supply Chain Matters had the opportunity to speak with Oracle JD Edwards Group Vice-President and General Manager Lyle Ekdahl regarding this week’s announcement, and we were especially interested as to why Oracle elected to have its premiere mid-market ERP offering lead the charge for mobile computing enablement, particularly in supply chain related applications.  Ekdahl’s response was that mid-market companies are just as challenged with reduced staffing and doing more with less, forcing many supply chain functional teams to be much more mobile in their day-to-day business activities.  When the JDE customer councils prioritized areas for needed future enhancements, mobile support was at the top of the list. This week’s announcement is the second iteration from a prior announced support of Apple iPad enablement  made at Oracle Open World last Fall. Ekdahl also noted that there will be several waves of JDE mobile enablement over the next 18 months. He also clarified that each of Oracle’s ERP product lines will have separate rollout strategies relative to mobile enablement.

We still find it interesting that that the JDE suite is currently leading Enterprise Business Suite in this area. Meanwhile, SAP and Microsoft continue to be low-key on their respective supply chain applications mobility strategies and support for customers.

The needs for select mobility enablement among certain supply chain business processes is a growing need and it is interesting to observe how the major ERP providers select processes and applications for mobility support.  Security of information however, will continue to remain a rather important requirement for businesses deploying more mobility features.

Bob Ferrari

Prediction Four in our Supply Chain Matters 2012 Predictions for Global Chains outlines a year of turmoil among three specific industry sectors, one being the Retail and B2C segment. More empowered consumers armed with smarter mobile devices continue to make a profound impact on this industry sector, and the results of these impacts again manifested themselves in the 2011 holiday buying season.  A recent Wall Street Journal article again re-iterated that showrooming is an increasingly bigger problem for retail chains ranging from Best Buy to Barnes and Noble, while at the same time being a boom for online retailers such as Amazon.

Retailers have no choice but to respond with alternative strategies to restore some balance of power and recent announcements from major retailers Target Corporation and JC Penny have provided some initial indicators for alternative strategies being explored.

Target has emphatically stated that it will not allow its brick and mortar stores to be utilized as a showroom that consumers utilize, only to later buy an item at an online site offering the most attractive price. This latest statement is on the heels of a rather disappointing 2011 holiday sales period for this U.S.  major retailer.   The retailer issued an urgent letter to its major suppliers suggesting that special differentiated products be made available only to Target. Where special products could not be made available by suppliers, Target is seeking assistance in matching the lowest available price for that item. While Target has had a history of influencing its suppliers to provide Target exclusive products, this new iteration appears to be an effort to expand this initiative.  In its reporting, the WSJ noted that designated Target suppliers will have little choice but to cooperate with the initiative or run the risk of losing a significant volume customer.

Meanwhile, retailer JC Penny’s new CEO Ron Johnson, who was the former chief of Apple’s retail stores, will unveil this week a sweeping re-alignment of that retailer’s brick and mortar merchandising strategies.  In an effort to make JC Penny stores a destination,  major stores will be partitioned into a variety of specialty shops, with the high traffic center of the store being turned into a “Town Center” hang-out or experience center similar to the Apple “Genius Bar”.  In addition to these physical store changes, the retailer is eliminating most all previous sales markdown efforts in favor of a lower price every day pricing strategy.  Here again, there is a strategy of differentiation among branded goods and making it more difficult for consumers to price shop particular items.

Supply Chain Matters fully anticipates that other big retailers will also follow with differentiation strategies, but the real impact will involve individual suppliers, who after many months of efforts to consolidate overall product offerings, may find themselves under pressures to once again provide product offerings for individual retailers.  That could also have negative inventory connotations.

As more retailers fire more salvos in the war with online providers, the implications cascading across supplier networks could well negate any previous cost and operational efficiencies.  If these same retailers do not invest in supply network efficiencies and more enhanced supplier replenishment initiatives, the overall goal may be for naught.

Bob Ferrari

Supply Chain Matters provides another update regarding our ongoing series of commentaries as to why pharmaceutical and drug supply chains failing to deliver reliable and life-saving supplies to doctors, hospitals and patients. The specific problem concerns generic, injected drugs which are utilized in chemotherapy and other life-saving treatments. Readers can reference our previous updates at the following web links:

Initial commentary

Commentary Two

Commentary Three

Commentary Four

The latest developments relate to the U.S. Food and Drug Administration (FDA) becoming very concerned about unscrupulous and grey market suppliers taking advantage of the ongoing critical drug shortages. The FDA is now directly warning clinics and healthcare providers to only procure drugs from approved sources both within and external to the U.S… The advisory warns that “In these cases, patients were unknowingly placed at risk when they received medications of uncertain purity, storage, handling, identity, and sourcing.” The FDA also warns that importing these medications from foreign sources is in violation of the Federal Food, Drug, and Cosmetic ACT.

According to a posting by Phil Taylor on Securing Pharma, the FDA has indicated that it is aware of promotions and sales of unapproved injectable cancer medications being distributed direct to U.S. clinics including unapproved sources of AstraZeneca’s Faslodex (fulvestrant), Amgen’s Neupogen (filgrastim) and Roche’s Rituxan (rituximab) and Herception (trastuzumab). The Secure Pharma posting also makes mention of a federal General Accounting Office (GAO) report that concluded that the FDA lacks proper authority to tackle this issue including a means to require drug manufacturers to report actual or potential shortages. The web link provided takes you to a GAO site that notes that the report is no longer available. We found that strange and interesting. Supply Chain Matters feels that the FDA does have some teeth in these matters, but perhaps not all that is required.

The important takeaway is that the prime U.S. regulatory agency has now publically acknowledged that unregulated and uncontrolled sources of these critical drugs have now entered drug and healthcare supply chains and buying authorities must be diligent to not utilize these sources, despite the enormous pressures to secure life-saving supplies of drugs.

We continue to find this state of affairs rather disturbing.  The FDA now has to warn healthcare professionals and their procurement teams to buy only from approved sources and to openly question whether a price sounds too good to be true, that deep discounts may equate to a product that is stolen, counterfeit or unapproved. Procurement teams should and are most certainly attune to this condition.

As this crisis continues into 2012, we believe that there is likely to be a call for pronounced industry efforts directed at traceability and pedigree of drug supplies and the pressure on drug companies to get more serious on supply chain identity and serialization efforts. While the industry may feel that traceability is an expensive or unacceptable alternative, the fact that healthcare providers cannot insure a reliable and safe supply of life-saving drugs could prove to be a far more expensive alternative.

What is your view?  We once again implore industry participants to weigh-in on this important issue.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters. All rights reserved.