subscribe: Posts | Comments | Email

The Saga of Supplier Takata Reaches a Sad Conclusion- What Has Been Learned?

0 comments

This week marks a sad milestone for an 80-year-old automobile components supplier with deep history.

Japan based Takata Corp., the company that has made unprecedented product recall headlines has filed for bankruptcy protection both in Japan and the United States. The move comes after the supplier faced reported claims and liabilities estimated to be in the billions of dollars owed to auto makers who were forced to shoulder the burden of unprecedented numbers of product recalls and associated costs.Airbag 300x168 The Saga of Supplier Takata Reaches a Sad Conclusion  What Has Been Learned?

Under the bankruptcy agreement, much of the supplier’s business interests will pass to rival Key Safety Systems for an estimated $1.6 billion. However, a reorganized Takata will have to assume liabilities not contracted in the bankruptcy sale, which includes continued production of replacement air bag inflators to complete outstanding repair parts requirements for many more months to come.

In January, a U.S. federal grand jury indicted three former Takata Corp. executives, overseeing air bag product management and engineering. charging them with conspiring to provide auto makers with misleading test reports on rupture-prone air bag inflators.  Takata separately pleaded guilty to criminal wire fraud and agreed to pay $1 billion to resolve a two-year long U.S. Justice Department probe of the supplier’s handling of rupture-prone air bags. Thus far, faulty air bag inflators from the supplier have been linked to 16 deaths and upwards of 180 injury reports globally.

According to estimates from The Wall Street Journal, there are currently 54 million defective air bags that still need replacement in the U.S. alone. These recalls affect roughly 16 percent of the 260 million vehicles still operating on U.S. roads, or roughly one in five vehicles. In some cases, replacement parts are required in lieu of other replacement parts. The supplier’s first and most trusted customer, Honda Motor, elected to drop the supplier in 2015, no longer willing to tolerate a supplier with such a track record of product design snafus and cover-ups.

As we opined in earlier Supply Chain Matters commentaries, replacement parts supply is expected to extend for several more years, making some vehicles even more susceptible to premature airbag inflation explosions that injure drivers and passengers. Auto makers thus remain dependent on a financially smaller and hobbled Takata to meet global demand of replacement inflators.

We noted in January that product and quality management incidents across the automotive industry have taken on more difficult dimensions that expose corporate cultures that favor cover-ups. In addition to Takata, there were the unprecedented numbers of Volkswagen diesel-powered vehicles that were secretly outfitted with emissions altering software. In a plea agreement, VW admitted that its supervisors and employees agreed to deceive regulators and customers regarding actual emissions. Estimates of VW’s ultimate liabilities range in the $15 -$20 billion range when the recall process completes itself over subsequent months. Fortunate for VW is that increased global vehicle sales and profits have helped to buffer the overall financial impact.

With each passing year, the scope and implications of product design and quality incidents have grown to unprecedented dimensions. Product and quality management professionals are placed in precarious roles to make problems go-way during intense pressures that business goals and performance bonuses are met. Doing the right thing for the ultimate customer seems to be a fading requirement. And now, corporations, executives and individuals are collectively being held criminally accountable for their specific actions.

The Learnings- If Any

If there is one of many takeaway learnings from these incidents is that in this digital age, product and process specifications and management actions are stored in digital files available for internal and external review. Transparency has new meaning along with resolve to do the right thing for customers and employees.

In many cases, employees often believe in doing the right things for customers, but sadly, management and business pressures overcome such zeal, and reward mechanisms value those who are creative in gaming the process. All of this, in the end, has a quantified cost, far exceeding the cost to have fixed a defect in the first place.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Mitigating Supply Chain Risk- How a Supplier Quality Management System (SQMS) Helps Minimize Supply Chain Deviations

0 comments

The following is a Supply Chain Matters Guest Posting is contributed by Alex Butler, Medical Device Product Manager, MasterControl

 The increase in international sourcing of drug production continues to rise in pharmaceutical manufacturing. With this increase, the FDA continues to document issues with supply chain breakdowns, errors, material quality and numerous other critical issues surrounding these activities. Supply chain issues have been further magnified in recent years as various to the degree that U.S. congressional committees have questioned the FDA in several instances in an attempt to uncover the root cause of these breakdowns.

Supply chain management for regulated companies is historically fraught with challenges, including many catastrophic instances impacting consumers. In 1937, more than 100 people, including many children, died from ingesting Elixir Sulfanilamide, which contained the deadly poison diethylene glycol. This caused President Franklin D. Roosevelt and the U.S. Congress to pass the Federal Food, Drug, and Cosmetic Act (FD&C Act) as an effort to prevent future catastrophes.

Leap forward to 2011, when the FDA produced a report titled, “Pathway to Global Product Safety and Quality,” and later, the European Medicines Agency (EMA) tightened their Good Distribution Practice (GDP) Guidelines and the Falsified Medicines Directive to improve supply chain management and minimize risk. At an earlier congressional meeting, the Principal Deputy Commissioner, Joshua M. Sharfstein, M.D., discussed the safety of the drug supply. He said, “Protecting Americans from unsafe or contaminated drugs is not just an important responsibility of the FDA—it is our core charge. Drug safety was the primary reason for the passage of our guiding statute.”[iii]

While problems that arose in the past may have been minimized by regulatory enforcement and the adoption of extensive quality control systems by responsible pharmaceutical companies, the industry is now experiencing a new era of quality-related dilemmas rising in the supply chain. Today, supply chain deviations have become a global threat not only to pharmaceutical companies, but potentially to healthcare professionals and public consumers as well, primarily due to the lack of the establishment of a quality culture in pharmaceutical supply chains.

The “white elephant” that the pharmaceutical industry is reluctant to address is counterfeit medications. Counterfeiting has become a massive issue worldwide. Detection and enforcement efforts are on the rise, and officials, regulatory bodies and watchdog organizations are not necessarily unified on best enforcement practices. Although there are many ways and reasons for why and how counterfeit materials and medicines are breaching the industry, one of the most troubling issues is when materials and ingredients are swapped with materials that are either inert or toxic. In some instances, these have made their way through the supply chain, resulting in harm and even death to patients. To date, these incidents are most commonly occurring in geographic locations like China and India. Because border agents and supply chain managers can’t always tell what’s been tampered with, regulators and governments are demanding tighter controls on the global supply, manufacturing, movement and storage of goods.

One thing is clear: it is the responsibility of pharmaceutical organizations to assume a leadership position in addressing and conquering the issue of counterfeit medicines and the challenges plaguing supply chain management. As the FDA states, the issue of managing a supply chain rests with the manufacturer, regardless of where deviations are generated in the supply chain.[iv]

The FDA’s Focus Shift

Historically, the FDA has focused its enforcement activities, including warning letters, seizures, injunction actions, consent decrees, criminal prosecution and so on, at U.S. facilities. However, recently the FDA’s enforcement focus has included facilities in other countries. This has resulted in a large increase in investigations into high-production countries such as China and India.

The pharmaceutical supply chain represents a new frontier for international enforcement activities. The FDA is beginning to increase its headcount in several countries, which signifies an increased emphasis on enforcement worldwide. Overall, the number of inspections has remained flat, but the investigators are being more thorough and are issuing more violations. Moving forward, we can expect to see continued enforcement against pharmaceutical companies with this heightened supply chain focus.

Supplier Quality Management System (SQMS) Software Solutions Can Help

Quality takes on different dimensions depending on the country in which a product is manufactured. Although nothing can take the place of a staff of quality professionals who are familiar with the regulations and the nuances of supply chain quality management and are well trained on the processes involved, the implementation of an SQMS software solution can be helpful.  An automated SQMS can help standardize vendor management processes and can provide efficiencies that give supply chain quality professionals more time—and a standardized process—to minimize the risk of supply chain issues that are breaching the borders and walls of pharmaceutical companies  and prevent problems before they arise.

Many organizations manage their supplier quality management processes using a paper-based or hybrid-electronic system.  While this system may be adequate and in accordance with FDA compliance requirements, it leaves room for significant errors and substantial inefficiencies.

Top Benefits of Implementing an Electronic SQMS

Although most leading pharmaceutical organizations have transitioned to using a software- or cloud-based SQMS, the majority do not. With the tremendous growth happening in the pharmaceutical industry, small and midsize businesses (SMB) have new opportunities to secure previously unforeseen or unavailable shares of the market with their proprietary drugs, generic drugs and advancements. Unfortunately, the inability to capitalize on these new market shares is often due to the fact that the SMBs have not yet shifted over to a software- or cloud-based SQMS. Here are some of the most mission critical ways that a software- or cloud-based SQMS can mitigate or prevent supply chain problems that commonly lead pharmaceutical companies to deliver or accept counterfeit medicines:

  1. Maintain All Supplier Quality Data in a Centralized Location: A repository for automating, maintaining and controlling all supplier quality data and documentation – from non-conforming material reports and audit observations to contracts and service level agreements – is an essential component of maintaining security and compliance. A secure, centrally-accessible storehouse allows pharmaceutical companies to more easily and efficiently manage and monitor supplier statuses and ratings, records, corrective actions and approved vendor lists (AVLs).
  2. Smoother Internal and External Audits: An SQMS can automatically track and store information derived from supplier management audits to help ensure that regulatory guidelines are followed. With an electronic SQMS, pharmaceutical companies can securely store and maintain all information related to supplier management audits, including audit approval statuses, recent data derived from supplier audits and links to quality assurance auditing and analytics reports.
  3. Improved Communication and Collaboration: All departments involved in supplier management—including authorized external parties—can stay connected across geographically dispersed locations, which facilitates better communication and collaboration with vendors and minimizes complications relating to specifications and materials. In this manner, pharmaceutical companies can gain greater visibility into supplier quality, reduce errors caused by miscommunication and, ultimately, receive higher-quality materials or parts.

No system, paper-based or software-based, is foolproof.  However, pharmaceutical companies that implement SQMS software solutions, are seeing meaningful improvements in supplier and supply chain quality issues, significantly mitigating supplier risks, and gaining a higher return on investment for their efforts.

 

MasterControl Inc. produces enterprise software solutions that enable life science and other regulated companies to deliver life-improving products to more people sooner.

 

 


Boeing Grounds Newly Designed 737 MAX Aircraft Over Engine Component Manufacturing Flaw

1 comment

Just days before the scheduled first customer delivery of the new Boeing 737 MAX aircraft, the commercial aircraft manufacturer has had to suspend ongoing flight testing after being notified by the engine supplier of what is believed to be an engine component manufacturing problem.

According to various published reports, Boeing was notified by aircraft engine provider CFM International about a “quality concern” related to the low-pressure turbine (LPT) discs installed within the new CFM LEAP-1B engines. A collection of five LPT discs with attached blades sit at the rear of this new, more fuel-efficient engine.  CFM LEAP1B 300x200 Boeing Grounds Newly Designed 737 MAX Aircraft Over Engine Component Manufacturing Flaw

Boeing spokespersons have indicated that the test flight suspension was ordered “out an abundance of caution.” Boeing further indicates that no operational problems were detected during the ongoing series of test flights. Affected LEAP 1B engines have been dispatched to CFM’s facilities for further inspection.

Reports are quick to point out that the engine problem is not engine design related but initial news of the suspension caused Boeing stock to initially drop nearly 2 percent.

As our Supply Chain Matters and aerospace supply chain industry readers may be all too aware, the industry remains sensitized to ongoing engine design issues. Specifically, design issues related to Pratt and Whitney’s new geared-turbo fan (GTF) engines which have impacted Airbus A320 neo customer delivery schedules and are still be addressed. CFM supplies an alternative engine, the LEAP 1A, as an option to the A320-neo, and those engines remain operational with some airlines. Initial indications are that the problem related to the 1B version are not affecting the 1A model.

A published report by the Seattle Times indicates that CFM informed Boeing late last week of a potential quality issue with the LPT disks within prior-delivered engines. CFM quality inspectors discovered an anomaly in the manufacturing process related to forging the discs.  As is often the case, LPT discs are provided by multiple suppliers, and the problem may rest with a single supplier’s discs. Thus, the likely steps underway are determining which specific engines included the suspect discs and assuring that all other discs meet manufacturing and performance specifications.

The irony of this news is that the 737 MAX program had repeatedly been reported as being ahead of schedule with very few issues. There have been upwards of 2000 hours of flight tests with first customer delivery to launch airline customer and Malaysia based Malindo Air, a subsidiary of Lion Air scheduled for later this month. Boeing indicates that the delivery will go ahead as planned, along with scheduled May delivery to Norwegian Air.

Boeing further indicates that production plans for the 737 MAX remain as planned, obviously with an expectation that the engine issue is temporary in nature.

Product management, procurement and supply chain teams are acutely aware that despite rigorous planning and testing, a supply or manufacturing glitch can occur at any time during a product lifecycle.  The challenge is often in the timely detection, the response, and the mitigation plans. This week, commercial aircraft supply chains have yet another current reminder that even the best planned programs are subject to unplanned events.

Always be prepared.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


2017 Industry Specific Prediction- Consumer Packaged Food and Beverage Supply Chains

Comments Off on 2017 Industry Specific Prediction- Consumer Packaged Food and Beverage Supply Chains

In our recently unveiled 2017 Predictions for Industry Supply Chains (Available for complimentary downloading in our Research Center), we elected to include Consumer Packaged Food (CPG) and Beverage supply chains in our industry-specific predictions. We have included this industry in our industry-specific predictions for the past three years and already, industry dynamics of activist investors surrounding the industry are once again underway, and the supply chain stakes are becoming far higher and likely destructive.

Consumers have not wavered in their more health-conscious view of food and beverage consumption and their shopping preferences continue to shun traditional processed foods. They demand healthy food choices containing natural and sustainable ingredients. Throughout 2016, these trends continued to be reflected in the business and financial performance of globally branded food producers who now continue to be challenged in achieving single-digit top-line sales and profitability growth. Global observers such as the Economist question whether the global expansion and presence model has run out of steam because of diminishing financial returns.

As what occurred in 2016, declining profits and meager sales growth continues to spawn activist investors to influence certain CPG, food, and beverage firms to consolidate. The prime disruptor in this industry remains Brazil based 3G Capital and specifically Heinz-Kraft Foods. A report from Fortune describes the 3G Capital playbook as a “meritocracy” that is on track to consume the food industry. The model includes wholesale replacement of an existing senior management team and what is often described as a blitzkrieg of cost cutting predicated on zero-based budgeting tenets. This model is further described in the analogy of a swimming shark with tendencies of buy, squeeze and repeat with the next target.

When 3G acquired Heinz, upwards of 7000 job cuts were initiated while five production facilities were shuttered. Earnings Before Interest and Taxes (EBITA) improved by 8 percentage points over an 18-month period. Heinz then acquired Kraft in 2015, and reports point to upwards of an additional 5000 in headcount reductions. A recent published Fortune report cites research firm AllianceBerstein as indicating that Kraft-Heinz is already 88 percent towards its goal to cut an additional $1.5 billion in annual costs by the end of this year.

Acquisitions govern growth as opposed to just organic sales growth.  The CPG industry is now consumed with the threat of 3G, and as Fortune observes: “The entire food industry is “3G-ing” itself before Kraft-Heinz can do it to the companies.” Fortune writes: “The whole food industry is speculating who’s next.” We concur and we predicted that there will indeed be another major acquisition involving a major branded CPG company in 2017.

Little did we know that it would come so soon and with far broader scope.

Dynamics Already Underway and the Stakes Increase

Last week featured the news of what our prediction included although the target and size was a big surprise. Kraft-Heinz issued a $143 billion acquisition offer for global CPG provider Unilever. While the offer was quickly rejected as insufficient, and subsequently withdrawn, the implications are far larger and once-again reverberating across the industry while all await the next shoe to drop. The Economist headline was: Barbarians at the Plate: 3G Missed Unilever but its methods are spreading.

Within the past few days Campbell Soup and General Mills reported disappointing sales and earnings. Campbell’s cited mistakes in its fresh-foods business unit that included a recent product recall and decision to harvest carrots while they were still small. Late last week, General Mills reported weaker than expected revenues from sales of yogurt and soup along with weakened consumer demand. The firm’s outlook for the remainder of its fiscal year that ends in May is expected to decline by 4 percent.

Today, The Wall Street Journal reported that Unilever is now pivoting from the Kraft-Heinz attempted acquisition with its Board now deliberating on options to deliver greater short-term value for shareholders.  That could include the sale of the firm’s current food division or attempting an acquisition of its own in the personal care area.

Meanwhile, speculation abounds as to what will be the next target for Kraft-Heinz. Names such as Mondelez International, Campbell Soup, Coca Cola Company, General Mills, Kellogg, and others are being tossed about.

With such a backdrop, pressures increase on remaining CPG food and beverage companies along with associated food suppliers.  By our lens, the survivors are those that embrace innovation and find ways to best accommodate today’s consumer choices.

Industry Supply Chains Buffeted from the Impact

In the middle of such forces are CPG focused industry supply chains that continue to be pressured for additional cost reductions and productivity savings. This will unfortunately, continue and at a more intense pace.  At the same time, visionaries continue to believe that the future still comes from process and technology enabled innovation and in sourcing, planning and marketing healthier and more organic food products. Thus, many food supply chains have heavy requirements for continuous new product introductions and in developing distribution strategies that accommodate an entirely different customer fulfillment need. Coupled with that is satisfying consumer needs for visibility into all levels of the food supply chain and specifically where food has originated.

All the above will be the primary agenda for CPG and beverage supply chains in the coming year. The winners are supply chain leaders who educate senior management on the differences of supply chain as a cost center vs. a business innovation enabler. They will also be those that can keep a laser focus on the end-goal, meeting and accommodating far different consumer preferences with changed thinking and distribution methods. Many will need to be equipped to deal with our other 2017 predictions such as responding to the perfect storm in the requirements for skilled supply chain talent across many supply chain, procurement and distribution dimensions along with the needs for advanced technology to support more predictive decision-making.

Bottom-line, the CPG industry remains in a state of defense and apprehension, and by our Supply Chain Matters lens, industry supply chains will pay the inevitable price in needs for further cost and headcount reductions along with blocked efforts to instill added product, process, and resilience to overall business support capabilities.

Stating the Obvious

Sometimes, a blog such as ours needs to be blunt in viewpoint to provoke additional thinking or changed mindset. The wave of activist investors surrounding the CPG food and beverage industry is destructive to supply chain capability and innovation, and the timing could not come at the worse time.  CPG industry supply chains and their network of food suppliers require the ability to support a business need for healthier and more organic food choices for consumers.  This wave of zero-based budgeting and cost cutting will not likely achieve that objective, and we as consumers, will have limited choices for healthier food. It is a race to the bottom with notions that the survivors gain the spoils.

One must wonder what the end-state really implies, short-term investor rewards or industry supply chains with very little capability to support required process, technology, and product innovation.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Samsung Galaxy Note 7 Investigation Points to Battery Flaws- or Something Broader

Comments Off on Samsung Galaxy Note 7 Investigation Points to Battery Flaws- or Something Broader

As we continue deep dives on the remainder of our 2017 Predictions for Industry and Global Supply Chains, we have fallen behind a bit on some other noteworthy supply chain news and developments. This being Friday, this Editor wanted to catch-up.

One event that we wanted to highlight in this blog was last week’s meeting with U.S. regulators and the disclosure from Samsung of its investigative efforts to seek the root causes of the battery explosions and fires that impacted that firm’s newly announced Galaxy Note 7 smartphone. These incidents caused the recall of all 2.5 million produced Galaxy Note 7’s and the unprecedented decision to suspend all subsequent sales of this model. The irony was that this model phone had received rave product reviews prior to its market release. Samsung Gal Note 7 Sized 300x200 Samsung Galaxy Note 7 Investigation Points to Battery Flaws  or Something Broader

According to various published reports, Samsung conducted its investigation with the aide of two independent quality control and one supply chain analysis firm.

The report outlines what many of our readers can relate to as a series of cascading supply chain focused snafu’s. The findings were announced after testing 200,000 devices and 30,000 batteries in a special charging and recharging test facility fitted for the task.

The initial phones released in August were fitted with lithium-ion batteries supplied by Samsung SDI, one of the electronic component subsidiaries of Samsung Electronics. The investigation revealed that the SDI batteries were irregularly sized and there wasn’t enough room between the heat-sealed protective pouch around the battery and its internals. This disparity apparently led to battery shorting, overheating and the subsequent fires.

A secondary supplier of batteries was Amperex Technology which produces its batteries in China. This supplier was originally tasked to supply batteries for the China version of the Note 7. As Samsung began to sense a disturbing pattern of fire incidents related to its initial phones, it recalled the devices while urging Amperex to ramp-up production of more batteries to re-fit customer replacement phones with the alternative Amperex battery.

To the likely frustration of many product focused managers, these second issue phones also experienced battery overheating and fires. The second series of battery fires prompted the decision in October to pull the plug on this model.

The investigation of the Amperex batteries points to manufacturing inconsistencies. According to a posting by Wired, some cells were missing insulation tape, and some batteries had sharp protrusions inside the cell that led to damage to the separator between the anode and cathode. The batteries also had thin separators in general, which increased the risks of separator damage and short circuiting. Wired further provides a detailed review of all the other technical issues brought forward in the investigation and similarly cites a subsequent published report by The Wall Street Journal, reporting that Samsung had misdiagnosed the problem when issuing the first recall.

Samsung reiterated during the press conference that it found no irregularities with phone features that may have “helped” the battery overheating issues. However, the consumer electronics mobile chief, D.J. Koh, half acknowledged some product design process deficiencies:

To produce an innovative Galaxy Note 7, we set the goals on battery specifications. We now feel a painful responsibility for failing to test and confirm that there were problems in the design and manufacturing of batteries before we put the product out to the market.”

To address regulator concerns as to how Samsung will avoid future incidents, the manufacturer has established a new eight-step process that includes supplemental testing, inspections and manufacturing quality checks, among other measures. As for its own phones, the company is designing a new compartment to give batteries more space inside the phone to avoid damage from physical drops. Koh finished the event by saying that Samsung will share its lessons with the entire industry to improve overall lithium-ion battery safety

But, as we all probably know, major damage has been done to the Samsung brand, and this recall alone will cost the company upwards of $5 billion.

One of the more insightful reports concerning this Samsung recall came from the New York Times. (Metered view) The Times authors posed the question:

How could such a technologically advanced titan — a symbol of South Korea’s considerable industrial might — allow the problems to happen to begin with?

Noted was that Samsung, like South Korea as a whole fosters a top-down, hidebound culture that stifles innovation and buries festering problems.  Cited is a former Samsung employee who states: In the Samsung culture, managers constantly feel pressured to prove themselves with short-term achievements. Executives fret that they may not be able to meet the goals and lose their jobs, even when they know the goals are excessive.”

The Times spoke with Samsung officials, who spoke on the condition of anonymity while the Note 7 investigation was being completed. Their reported observation was:

With the Note 7, Samsung pushed its business model, as well as its technology, to the limit… Driven by the desire to prove it was more than a fast follower of Apple, Samsung rushed the Note 7 to market ahead of Apple’s iPhone 7. To fend off Chinese competitors like Huawei and Xiaomi, it packed the phone with new features, like waterproof technology and iris-scanning for added security.”

A further insight:

Samsung’s insistence on speed and internal pressures to outdo rivals in part signal a breakdown in the ability to truly innovate and push out new ideas, critics say. In place of big new ideas, Samsung focused on maxing out the capability of components like the battery. That philosophy, which worked to keep Samsung on the heels of the likes of Apple, simply is not as effective as Samsung tries to push ahead, they argue.

As noted in our most previous Supply Chain Matters commentary related to the Note 7 incident, Samsung achieved a significant $5 billion in profitability in its latest quarter. That had more to do with the performance of the Samsung Electronics component businesses as opposed to the Mobile business.

We wonder aloud if the observed flaws in corporate culture and its consequent implication to management’s ability to manage and weigh risk factors will be a lost memory because of its recent financial performance.

Somewhat similar to Volkswagen and its emissions cheating incident, the real question comes down to long-term damage to the brand, and to the ability to recruit talent and leadership willing to make the right decisions for both the business as well as customers and supplier partners.

In the minds of consumers and customers, product and supply chain component integrity and safety trumps all other concerns.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


« Previous Entries