We have yet another update to our Supply Chain Matters ongoing commentaries as to why are 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 are welcomed to scan our previous initial commentary, and Commentary Two to gain a perspective on the depth and severity of this ongoing problem.

The Economist magazine printed an article in the September 3^rd, 2011 edition, titled Coming up short.  It noted that in 2004, the U.S. had a shortage of 58 drugs. In 2010, there were 211 severe drug shortages, and thus far, 198 have been recoded.  The problem has spread and so has the panic. Once more, hospitals are now forced to consider navigating across ‘grey markets’ to secure some supply of life-saving drugs.

The Economist article notes that the causes of these drug shortages remain tangled and points to three potential causes. The first is manufacturing problems as firms trim costs and import cheaper active ingredients of variable quality. The second relates to ongoing mergers among generic drug makers, causing the supply of a given drug to be left to just one or two companies.  The third cause points to pricing, in that after a patented drug becomes open to generic alternatives, the price plunges as manufacturers fight for remaining market-share.  In all cases, market dysfunction then occurs opening the door to ‘grey market’ operators, hoarders and other such behaviors. While the FDA and firms are feverishly searching for root-cause solutions, U.S. Congressional leaders seen unable or unwilling to come-up with increased regulatory actions, especially in light of the current dysfunctional political environment.

Last week, we ran across a UPS press release announcing the release of the UPS 2011 Pain in the Supply Chain Survey specifically concerning healthcare manufacturers.  This survey outlined the top business and supply chain concerns of senior-level decision makers at nearly 250 pharmaceutical, biotech and medical device companies across the U.S., Europe and Asia. Surely, we would find some other pointers to this ongoing problem.

According to this survey, there are three key areas which these companies are focused:

1. Investment (in technology and global expansion)
2. Protection (in areas of intellectual property and product security)
3. Acceleration (in levels of concern around issues and changes in the supply chain)

If you review the findings, you will note that the first area is about concerns relative to ongoing healthcare reform along with changing and increasing customs laws for raw materials. Concerns for protection center on the usual areas of increased regulation, reform legislation and patent expiration. In terms of the area of acceleration, not much at all is stated.  Doesn’t that seem odd?

What was noted was that managing costs ranked as the second largest supply chain issue, cited by 64 percent of decision makers, and one of the top issues many companies reported being unsuccessful in achieving. In fact, in the complete series of these UPS surveys, managing costs was the number one supply chain issue for four consecutive years now.  This is in an industry with generally healthy product margins, with the possible exception of generics.

Scanning the list of other compelling concerns, there was no citing of increased quality and compliance initiatives, broader global supply chain visibility or collaboration. While a whopping 93 percent of U.S., 85 percent of European, and 82 percent of Asia based companies all plan to invest in new technologies in the next 3-5 years, one has to openly question whether priorities are being correctly assessed. More importantly, what is the strategy of the supply chain?  Is it not to deliver products on-time, with quality, consistency and reliability?

Supply Chain Matters urges all drug companies, especially those producing generic injectable or intravenous drugs to take a close look in the mirror. If your one concern is increased regulation and managing costs, and your supply chain is failing miserably to deliver on-time supply, are you not in a self-fulfilling loop of denial?

Increased regulation comes when patients place pressure on government to reign-in unacceptable practices from drug providers, such as drug shortages causing unnecessary delays in critical treatment or even causing patients to die. The recent American Hospital Association survey noted that more than 90 percent of hospitals reported shortages of surgery, anesthesia or emergency care drugs, while two-thirds reported shortages of chemotherapy drugs. Managing costs can lead to cutting corners with supply, production and oversight, which are further symptomatic of the current problem and of a failed supply chain.

This situation continues to gain visibility and yet, the industry remains silent.  This is not a healthy situation for any party.

Bob Ferrari

Yet another follow-up to report regarding our ongoing Supply Chain Matters commentary regarding the fairly large recall of ground turkey in the U.S. because of suspected infection by a highly resistant strain of salmonella. Readers may recall that in mid-August, Cargill announced the recall of 36 million pounds of ground turkey after over 100 people were sickened across 31 states.

The Wall Street Journal is reporting today (paid subscription or metered view required) that Cargill is recalling an additional 185,000 pounds ground turkey product produced on August 23-30 and August 31, due to contamination of salmonella Heidelburg.  The company announced this second recall after a USDA test indicated that this form of salmonella was present in a sample taken from the company’s Springdale Arkansas plant on August 24, just two weeks after the first announced recall.  This was the same facility identified in the initial product recall in mid-August.  This latest recall involves ground turkey trays, patties and product sold in sausage-like packaging and distributed nationally under the Honeysuckle White, Kroger and HEB brands.

Cargill further announced that it is now suspending production of ground turkey at the Springdale facility until corrective actions can be taken and approved by the USDA.  This is an obvious wise move. Various other turkey products also produced at the subject facility are not impacted by this suspension. According to the WSJ, Cargill operates four turkey processing plants in the U.S. and no ground turkey products from the other three facilities are involved in this latest recall.

The obvious question is whether the company performed adequate inspection and due-diligence to eliminate the prior root-cause of the contamination before deciding to resume production.  As we noted in our previous commentary, the hands of government inspectors are somewhat tied when it comes to enforcing findings of salmonella, and the burden lies more on the producer to self-enforce quality and inspection.

Readers may also recall the saga of Johnson and Johnson who continues to endure the implications of multiple product recalls that originated from a noted single manufacturing facility, but later involved other manufacturing facilities.  The problems were not just local, they were systemic.  An internal J&J investigation which was reported by the WSJ in mid-July pointed to reduced staffing levels as a cause

That is not to say that Cargill has a breakdown in its overall quality monitoring processes but it is certainly an alarm that quality and inspectional efforts need to be re-doubled across all production facilities.

We trust that Cargill will now follow-through

Bob Ferrari

The Wall Street Journal reported today(paid subscription may be required) that Johnson and Johnson will embark on yet another  reorganization in the wake of significant manufacturing quality problems resulting in multiple product recall incidents  that stretch back to 2009. There have been 19 product recalls dating back to September 2009. J&J’s McNeill Consumer Healthcare Group is the primary manufacturer of cold, allergy and pain relief medicines under the popular Tylenol, Benadryl, Motrin and Zyrtec brand names which have been involved in various product recall incidents.

According to the WSJ article, the McNeill unit in the U.S. will be spun-out as a separate organization. The unit will be headed by Patrick Mutchler, a 35 year veteran employee who has had a variety of assignments on the consumer business side.  Also reported was that executives Marc Robinson, who had overseen J&J’s OTC worldwide businesses, and Peter Luther, who had been president of the McNeil  unit, have been given other roles.  These moves were apparently motivated to give more focused attention to quality and compliance needs as well as restoring consumer confidence in J&J consumer brands.  Supply Chain Matters commented in late December on a series of previous executive promotional appointments at J&J which were designed to assure more focused accountability and attention to company-wide manufacturing and supply chain process needs. These included the promotion of executives Alex Gorsky and Sheri McCoy, who were speculated to be in line for succeeding current Chairmen and CEO William Weldon.  We communicated in that commentary our hope that the newly elevated executives would put personal competitive instincts aside and come together with a unified plan of action to address the ongoing quality crisis. (As a side note, Mr. Weldon was granted a 3 percent base salary increase for 2011, but his 2010 bonus was cut by 45 percent.  The increase was reported to be based on Mr. Weldon’s handling of the product recall crisis.)

As these new appointments were announced, another J& J product recall announcement came yesterday involving 34,000 bottles of Tylenol 8-Hour Extended Release caplets after continued consumer complaints of musty or moldy odor. Readers might recall that similar complaints, tracked to chemicals applied to wooden pallets, existed in certain 2010 recalls. In this occurrence, the presence of trace elements of the chemicals TBA (2,4,6-tribromoanisole) and TCA (2,46-trichloroanisole) were linked to the recalled product, which is different than previous recalls. J&J also as a precautionary measure, widened a wholesale-level recall first announced in January, adding 10 product lots comprising 717,696 bottles of various Benadryl, Tylenol and Sudafed products. A review of past manufacturing methods found cases where equipment cleaning procedures were insufficient or not adequately documented.

While J&J is taking organizational action to resolve its ongoing quality crisis, one has to wonder about the clarity and speed of management actions.  What does a spinoff of McNeill accomplish?  More importantly, where are the accountability efforts across all of J&J’s manufacturing and supply chain activities?  It was previously noted that Mr. Gorsky was given responsibility for proactively addressing company-wide manufacturing and supply chain quality measures while Ms. McCoy had oversight of the consumer business units. There have, at least to our knowledge been no high-level executive firings, other than announcement last September of the early retirement of Colleen Goggins, the former lead of the consumer business.

As noted back in October, no company, not even J&J, can rest on a previous reputation of quality and responsiveness. J&J needs to fix its quality and supply-chain problems fast. It is unclear that adding more executive layers of focus and responsibility will help in this effort. What J&J needs is a complete transformational strategy that encompasses accountability, process, technology and change management components.  Time is of the essence along with clarity of communications and action.

Bob Ferrari

One of the very first supply chain risk and disruption incidents that the Supply Chain Matters blog noted during its inception a little over two years ago was the incident involving contaminated heparin that occured within China.  We were literally taken aback that product contamination incidents would be occurring in the most regulated and safety sensitive of supply chains.  If these quality breakdown incidents were occurring in this segment, what about other less regulated supply chains?  It did not take long to gather other evidence after the incidents of quality breakdowns in drug-related supply chain continues.

In one of our summary commentaries in March of 2008, Drug Imports from China- Controls are Mandatory, we noted that government inspections cannot be relied upon to be the sole quality control point for drugs, medicines and medical materials being imported from China. At that time, there were over 700 Chinese drug makers registered with the U.S. Food and Drug Administration (FDA), with just 14 inspections completed.

Two years since, a recent Wall Street Journal article, FDA Faulted in Heparin Case (paid subscription may be required) indicates that U.S. congressional investigators have observed that the “FDA failed to pursue several “specific and credible leads” that might have identified culprits in China” during the 2008 heparin contamination incident.  The overall incident was ultimately linked to 80 deaths impacting the most medically critical area of drug delivery.  This article further notes that “one red flag that the FDA allegedly ignored was that a foreign “respectable regulatory government agency had shared “a significant finding” that a Chinese company was making counterfeit crude heparin to be shipped to the U.S. under another firm’s label.” The FDA never issued a definitive finding as to who or what was responsible for the heparin contamination incident, that in essence there were too many sources of potential contamination. Even more problematic is that the Congressional letter further observes “that the FDA faces legal and linguistic hurdles in conducting probes overseas.”

The obvious question therefore remains, has the pharmaceutical industry learned anything from previous deadly and shocking incidents of contamination?  Have new, more adequate controls been put into effect to both control or detect the presence of contamination from either foreign or domestic production sources before reaching patients? I believe that the answer is sketchy at best.

The newest conflicting evidence involves the incident of McNeil Consumer Healthcare, a division of Johnson and Johnson Inc., that is working in consultation with the FDA in implementing a voluntary recall of infant and children’s liquid products due to manufacturing deficiencies which may affect quality, purity or potency. The products include certain liquid infant’s and children’s Tylenol®, Motrin®, Zyrtec®, and Benadryl® products which were produced in U.S. facilities. According to an ABC News Report (video) an FDA inspection found a wide range of problems at McNeill’s Pennsylvania production facilities triggering a number of  “red flags”.  In this incident, the FDA actually did its job and called for action by the manufacturer.

As we noted previously, quality and safety will have to come from highly controlled and monitored processes, managed by the brand owners themselves.  Two years after the heparin contamination incident, the U.S. government is still engaged in a finger-pointing exercise and pharmaceutical companies have breakdowns in quality control and monitoring processes. Patients and consumers have to figure out for themselves what drugs are safe, and a highly regulated supply chain shows signs of breakdowns among its various players.  The industry has to solve its problem of quality controls both from domestic and international production sources, and it cannot just punt to the FDA to be the continual watchdog. The FDA has a finite number of resources and cannot be expected to cover all international sources of production.  As noted, the FDA is busy enough just trying to monitor and control domestic incidents.

Sick and dependent patients, children, and all of us, deserve better. The Pharmaceutical industry needs to step-up in efforts in quality monitoring and control, as well as risk detection.

Bob Ferrari

The ongoing product recall and quality perception crisis regarding Toyota Motor Corp. took on some positive movement in the past few days.  Last week Toyota announced chief quality officer executive appointments within each major geography. 

Steve St. Angelo, executive vice president of Toyota’s U.S. manufacturing operations in Erlanger, Ky., was named the company’s chief quality officer in North America. St. Angelo will represent North America on the corporate quality review committee that will meet regularly with Toyota President Akio Toyoda.  St. Angelo’s new team will bring together top U.S. executives at Toyota and come up with plans to boost quality assurance and customer research. Other geography teams will similarly focus on specific quality needs in the respective region.

The special corporate-wide committee on quality consisting of 70 members held its first meeting on Tuesday of this week.  Several different press reports indicate that the initial output of that meeting was to authorize the forming of dedicated technology offices within each major region.  Technology offices will be increased from current one to seven within North America.  New technology offices will also be established in Europe, China and other regions. Toyota noted that the quality committee will issue its first report in June and will meet regularly to exchange insight and tackle safety issues.

According to a New York Times Featured Business article, under this new quality management structure, each region’s chief quality officer will co-participate with Toyota headquarters in Japan on consensus-driven action plans to address quality issues, including the need for recalls. Toyota also plans to have third party experts evaluate measures to improve quality and review steps adopted by the special committee.  The next special committee meeting is planned for September.

Meanwhile, U.S. Transportation Secretary Ray LaHood announced two major investigations designed to answer questions surrounding the issue of unintended vehicle acceleration. The U.S. government is calling on scientists from NASA and the National Academy of Sciences to further investigate potential causes of SUA in Toyota vehicles.

Time and events will tell if these new geographic regional quality teams will really have the corporate power to take proactive action on any future quality issues involving Toyota vehicles, but for now, these organizational and other product actions are a step in the right direction.

Bob Ferrari

The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

Readers of the Supply Chain Matters blog often know how often we have been highlighting incidents of supply chain risk related to product recalls originating from contamination or bogus materials.  The incidents have been far-reaching, ranging from the ongoing massive recall incident involving multiple models of Toyota vehicles to numerous incidents of contaminated or bogus products entering various industry supply chains.  One common aspect of many of these incidents is when certain products originating from specific suppliers are the source of the contamination and the effects rapidly cascade to other multiple product-related supply chains.  Past incidents include peanut products, pistachios, drug compounds and more recently cracked pepper that coated certain salami products.

The most recent real-time incident involves the suspected contamination of hydrolyzed vegetable protein (HVP), which is an ingredient incorporated in many food products.  On March 4th, the New York Times reported that thousands of processed foods, from soups to hot dogs, contain this flavoring ingredient that is suspected of being contaminated with salmonella.  The specific supplier named was Basic Food Flavors of Las Vegas Nevada, and the original discovery was made by a customer upstream in the food processing supply chain. The U.S. Food and Drug Administration (FDA) inspected the Basic Foods plant in February and uncovered salmonella in the company’s processing equipment, which led the company to voluntarily recall all of its HVP product produced since September 17, 2009, over five months worth of production.

The article notes that most affected products are safe because cooking, either before or after sale, eliminates the risk.  But that in no way eliminates the risk if your particular product does not completely meet that cooked criteria, or erring more on the side of caution prevails in terms of risk to the consumer.  As even more real-time evidence to this situation, yesterday Procter and Gamble voluntarily recalled two specific flavors of its very popular Pringles potato chip product because they contained this same suspect HVP ingredient. I have no doubt that there may be other recall announcements coming.

Once again, the important take-away reinforced by these ongoing incidents is the critical importance that both supply chain traceability and risk mitigation have become as required process capabilities, and how important technology helps in supporting such capabilities.  An overdependence of regulatory agencies to discover and track the actual sourcing of contamination often implies that the supply chain has already been impacted by an incident.  This mandates the need to be able to quickly and efficiently trace where certain products were manufactured, and to which customers or retail outlets they were distributed.  It also implies the ability to be able to quantify the overall risk involved and the ability to quickly quantify, assess and implement risk mitigation plans.  Having a supply chain planning system that can perform what-if analysis and quickly re-plan for alternative ingredients is rather fundamental, as well.

Our community often looks to P&G as the benchmark in world class supply chain capability.  It should therefore be no surprise that within days of the original announcement, P&G was able to trace what specific end-products were or were not at risk, what lot numbers were involved, and was able to transmit important information to consumers on a dedicated web site. 

Successful risk mitigation occurs when proper planning, process, and information technology enablement are in place.  Too often, the negative effects come when they are not in place.

 Bob Ferrari