Supply Chain Matters notes yet another installment in the continued risk of counterfeit drugs and goods within supply chains.

The Financial Times reported that leading generics drug producer Teva Pharmaceutical is stepping-up quality inspections of its products across Europe after discovering a sophisticated counterfeiting operation involving a popular off-patent heartburn treatment medicine.  The fake versions of the drug Omeprazole were discovered by Ratiopharm, a subsidiary of Teva after being alerted from a patient in Germany, who noticed spelling mistakes on the label of the packaged drug. Apparently, the drug contained genuine ingredients but was not produced by the manufacturer stated on the label. While the counterfeit version of this drug does not appear to pose a health risk, it has exposed weaknesses in government drug discount reimbursement programs based on the volume of drugs sold. A spokesperson for Teva was quoted as noting that this company was somewhat surprised to discover this counterfeiting scheme involving one of its products. Stepped-up efforts now include random testing of the company’s products that are in distribution, along with other products.

The alert has now triggered other manufacturers of Omeprazole to make further discoveries of fake versions of both the 20 milligram and 40 milligram packs of this drug.  One other manufacturer mentioned included Hexal, a subsidiary of Sandoz.  Here again, it is noted that while the unit cost of this drug is relatively low, thieves have been able to generate substantial profits through volume distribution of the counterfeit version.

Bob Ferrari

Prediction Nine of our 2013 Predictions for Global Supply Chains (research report available for free download within our Research Center) noted that higher and more expensive incidents of counterfeit products within and across supply chains will finally motivate industry to step-up mitigation efforts.

Last year, one of the more visible aspects of this problem were incidents of counterfeit versions of the cancer life-saving drug Avastin making their way across global supply chains. In a July 2012 commentary, Supply Chain Matters highlighted The Wall Street Journal’s investigative report that traced how fake versions of Avastin were procured and distributed through a network of international distributors. The global distribution scheme opened the door to sourcing of the drug from countries where regulatory controls are not as strict, and where introduction of fake medicines into the supply chain are more easily accomplished.

On Wednesday of this week, The Wall Street Journal once again reported that the U.S. Food and Drug Administration (FDA) had to once again alert physicians and healthcare providers to yet another counterfeit batch of Avastin. This latest warning involves distributor Pharmalogical, which also does business as Medical Device King and Taranis Medical, which shipped two batches of Altuzan, the Turkish branded version of Avastin, to U.S. based healthcare providers. It was reported that at least one batch contained no active ingredient.  According to the WSJ, the FDA was unable to identify which doctors purchased this batch of medicine. The article also makes note that U.S. law-enforcement agencies and drug manufacturers are aggressively pursuing drug distributors that sell unapproved foreign drugs, and that two new guilty pleas have come forward in recent weeks.  One was the case of a San Diego based oncologist who pleaded guilty to buying an unapproved foreign version of the cancer drug Rituxan from an overseas distributor, and then bill Medicare for the full price of the drug. In another case, a Florida based distributor pleaded guilty to conspiracy and mail fraud in the importation of $7 million worth of the cancer drugs Taxotere and Eloxatin.

In 2012, we called for all members of pharmaceutical and drug supply chains, industry regulators to bring serious attention on processes related to the sourcing, supplier monitoring and product authenticity of drug supplies. We neglected to specifically mention unscrupulous distributors’ healthcare providers who are pursuing business self-interests over the safety of patients.

The good news is that some progress is being made.  In 2012, U.S. enforcement efforts directed at suspected illegal drug trafficking involving prescription drug abuse, ensnarled supply chain players such as major distributor Cardinal Health, drug retailers CVS and Walgreens.  In the remaining months of 2013 we hope to be featuring more commentaries noting progress in these areas.

Bob Ferrari

Readers may recall that during the month of December, Supply Chain Matters outlined our ten predictions for global supply chains in 2013.  These predictions are now available in a comprehensive research report that is available for no-cost downloading. The report itself adds additional updated content that we were not able to provide in the series of blog commentaries. We merely ask that you provide us some basic name, position and email information. Again we reiterate that it is the policy of Supply Chain Matters to not sell, disclose or distribute our subscriber email data to third parties.  A sign-up for a no-cost research report will also place you on the distribution for our Supply Chain Matters Newsletter that is published throughout the year.

Please visit our Research Center , located on the top menu bar, to download Annual 2013 Predictions for Global Supply Chains.

Bob Ferrari

In conjunction with Prediction One of our Supply Chain Matters 2013 Predictions for Global Supply Chains, we will provide periodic commentaries throughout the year related to any noteworthy shifts in global supply chain activity, as reflected in recognized indices.

Various global purchasing and production indicators reflecting on January 2013 indicate positive signs of optimism, particularly in China and the United States.  Probably the most positive indices and signs of optimism came from the Eurozone sector.

U.S. purchasing and factory activity reflected in the Institute of Supply Management (ISM) January 2013 index indicates strong activity. The ISM PMI in January rose to 53.1, up 2.9 percentage points from the December 2012 index, and also the second consecutive month of increased activity. New orders, production and employment each had positive gains.  A 3.6 percentage point gain in new orders is an especially noteworthy sign of increased momentum along with a 2.1 point gain in manufacturing employment.  Inventories increased significantly, over 8 basis points, after two consecutive months of contraction, which should also be an optimistic sign.  The purchasing price index increased slightly but according to ISM, 67 percent of supply executives reported paying similar stable prices.

China manufacturing activity reflected in the HSBC China Manufacturing PMI recorded a two year high in January. The reported 52.3 number reflected a .8 point increase from December, and reflected the third consecutive month of manufacturing sector growth. The January new orders index signaled the fastest growth rate in two years and also adds signs for continued momentum. HSBC survey respondents suggested strengthened demand from customers in Europe and the U.S. However, input costs were reported as rising for the fourth month in a row while supplier delivery times are also on the rise.

The Markit Eurozone Composite PMI recorded a 48.6 value in January, a 1.2 point increase from December.  While the Eurozone sector still has a long way to go in terms of normalized output activity, the chief economist of Markit notes” The Eurozone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilisation in the first quarter.” Also noted was that Germany saw new orders rise for the first time in 11 months, while France, Italy and Spain each had easing over their previous rates of decline.

Taiwan also improved as reflected in the HSBC Taiwan Manufacturing PMI reading of 51.5 in January, up nearly a point from December, and reflecting a ten month high. This PMI reading was reported as the fastest rate of expansion since March 2012.  New orders also trended higher and once again, there was mention of increased demand from customers in China, Europe and the United States.  However, input costs were reported as rising rose sharply in January.

The HSBC South Korea PMI was reported as 49.9, down slightly from December’s 50.1 reading. The survey recorded a marginal fall in new orders as domestic market demand contracted slightly, with modest growth in new export orders.

All taken, the PMI indices are reflecting signs of optimism for the first quarter which should please global procurement and supply chain management teams. Perhaps our prediction of rather difficult top-line revenue and profitability challenges in 2013 may not totally come to pass and for that, readers should be pleased.  Let’s all observe what transpires in the months to come.

Bob Ferrari

The following guest posting contribution comes from Guy F. Curtin, Director of Product Marketing at RSi.  We previously published our Supply Chain Matters 2013 Predictions for Global Supply Chains. This posting represents Guy’s thoughts regarding supply chain technology in 2013. Guy has contributed prior guest postings on this blog and is no stranger to the supply chain technology space having contributed in roles of supply chain technology marketing.

Big Data or Real Time Data? Big data is everywhere. But is big data right for everyone? Supply chains are hooked on the idea that nirvana is somewhere to be found in that mountain of information. Is nirvana in that big data or could it be captured elsewhere? What about fast data? For example, do transportation companies need big data or fast data? It is more important to rapidly recognize patterns that might indicate a potential problem with a shipment rather than understanding 2 years’ worth of transaction data. While others, such as retailers,  look to leverage big data to extract patterns and insights previously not available – who wants to compare historical sales trends with promotions coupled with other data such as weather trends. For 2013, supply chain players will determine what type of data is more important to them…some might come to the conclusion that they need both.

Supply chains will look to business process management – BPM has been well known in process oriented businesses such as insurance and healthcare. Supply chains are recognizing the importance of instituting some BPM to their own ecosystems. Think of all the processes that take place within a supply chain – whether it involves the process associated with moving merchandise to bringing on a new supplier. Both vendors and users within supply chain will begin to seek or develop greater BPM suites and applications to bring some sanity to the myriad of processes needed to run a supply  chain.

Who will have a greater role in running your supply chain? Think marketing. Okay I realize that might be blasphemy in some circles. The department that is supposed to create colorful ads and glossies will all of a sudden manage the supply chain? It is already happening at some level – when a CPG supplier runs a promotion it is driven from the marketing side of the business. When you think of what is taught in every marketing class it is about the 4 P’s – product, place, promotion and price. Decisions at this level get pushed back to the supply chain to fulfill a 5th P – produce. Supply chains need to become more integrated with the marketing side of the house. Vendors will continue to find ways to provide solutions that tie together the supply chain and marketing sides of the house.

It is the consumer stupid. Related to the previous prediction, the consumer’s stature within the supply chain will continue to gain importance. A wise sage once said – “behind every B there is a C. There really are no pure B2B or B2C companies, but really B2B2C.” Regardless of what line of business you are in or where you fit in the supply chain, at the end of that chain is a consumer. Companies will strive to get closer to the end consumer – with access to larger amounts of data coupled with more powerful analytics – this will become a reality. Regardless of where you sit in the supply chain, you will have greater access to that end consumer. Those that recognize this and take advantage of the opportunity it affords, will find greater success in 2013.

More vendor consolidation…and more players. One of the big stories of 2012 was the announced merger between JDA and Red Prairie. I suspect other supply chain vendors such as Manhattan will find themselves targeted by the likes of SAP or IBM. (SAP also acquired Ariba in 2013 which also greatly impacted the supply chain space). As more of these “pure” supply chain vendors merge or get gobbled up the landscape looks thinner and thinner when it comes to solution providers. Or does it? While the landscape for pure players is thinning, in 2013 we will see solution providers emerging from unexpected places. For example, as I mentioned above BPM vendors such as Pega could begin to offer solutions that address certain supply chain issues. Or even companies such as Amazon will become players when it comes to certain aspects of the supply chain. Think fulfillment, distribution, warehousing, order management and demand sensing. Firms like Salesforce.com will continue to expand from their CRM stronghold and leverage their cloud acumen to become a player within the supply chain arena. As the players that defined supply chain in the late 1990s – i2 Technologies and Manugistics for example – become buried under the layers of consolidation, look for new players to emerge that will help manage your supply chain. And do not be nervous when they come from unexpected places.

Social remains an enigma but someone will solve that puzzle. Social has been seen as one of supply chains last great frontiers, an ability for companies to get closer to the consumer (because it is all about the consumer!). Social has been seen as a way to get instant demand sensing, detecting issues before they become front page news and even provide customers with better after market assistance. Yet, I have not seen anyone truly take advantage of the social beast. But someone will. Think about the data that could be found from services such as Groupon and LivingSocial as they provide promotions and demand shaping services for local vendors. What about all the social tagging services such as FourSquare, Gowalla and Facebook Places? The data and ability for companies, such as retail and CPG, to access and take advantage of that information could have repercussions throughout their supply chains. As companies look to gain competitive advantages, look for the company or companies within the supply chain that can take the most advantage of social to gain that little extra in market share.

Speaking of social, what about mobile?? In last year’s predictions I spoke about the rise of mobility and the impact it will have on supply chains. This will only continue in 2013. Of course supply chains need to think of mobile from multiple angles. Mobile is yet another data source. Mobile is also another manner of getting close to the consumer (see how we are tying in some of what was said above?). When a supply chain company mentions mobile, I always wonder what aspect they are speaking of. The smart supply chain players will determine what mobile means to their supply chain. Is it a data source they want to leverage, is a manner to touch their consumer or is it a way to bring greater efficiencies to their processes? In 2013, the smart supply chain players will determine what mobile means to them – data source, customer interaction, unique user interface or something else? But just saying, “we have a mobile strategy” will not fly anymore in 2013.

And when we discuss mobile can we ignore eCommerce? eCommerce has become a part of our everyday transaction and retail experience since the late 1990s. The reality is, the actual percentage of retail that is done via eCommerce remains small. Less than 6% of US retail was via eCommerce in Q3 of this year (numbers from the US Department of Commerce). But the influence that number has on our supply chains is much greater. As companies, such as Amazon, begin to push for same day delivery, there will be a greater pressure on supply chains to meet these demands created by an eCommerce world. The genie is out to the bottle, 2013 will be a year when the logistical headache created by that genie will impact companies from Best Buy to Ryder – all scrambling to figure out how to meet this consumer expectation.

Governments’ role will become vital to supply chain risk management. Much like 2011, we witnessed some large supply chain disruptions in 2012 due to Mother Nature. Think Hurricane Sandy on the East Coast of the United States. We also saw how human events can have an impact on one’s supply chain. Think the Olympics in London or the looming strike that could shut down the United States’ eastern port facilities. Supply chains have become global, complex and sensitive to disruptions…not a news bulletin. But because of this, governments are the only organizations that can truly ensure that the supply chains are kept up and running. Look for governments to begin to address how they can ensure supply chains are given the latitude to function properly. I might even suggest governments such as those of the United States consider cabinet level personnel to take on this task. Are you listening President Obama?

Public perception will drive supply chain decisions. Think about all the headlines that dogged Apple when the work practices at Foxconn were revealed. We all know that the “world is flat.” This flatness has allowed supply chains to find places and ways to gain efficiencies and lower cost. The flip side of the flatness has been greater openness of communication. When your main outsourced manufacturer leverages questionable labor practices to guarantee your margins…that might not be as easy to keep out of the public eye. The companies within the supply chain that have the greatest brand presence will also be the ones most sensitive to these issues. Look for companies such as Apple to turn a more PR savvy eye to some of their supply chain decisions.

Our Supply Chain Matters readers are again welcomed to share their own predictions and thoughts regarding what global supply chains can anticipate in 2013.

Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008.

Readers can view the entire listing by clicking on this web link: 2013 Predictions for Global Supply Chains. 

In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.

Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.

Part Three posting dived into Prediction #5, our industry specific supply chain challenges prediction.

Our Part Four posting address the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.

Part Five predicted broader umbrella supply chain accountability in 2013.

Part Six predicted higher levels of action required in the control and mitigation of broad theft and counterfeit materials among industry supply chains.

In this final deep-dive posting, we explore our prediction related to cloud computing adoption in 2013.

Prediction #10: Cloud computing and managed services options, enabling supply chain business processes, will continue to gain more traction, provided that vendors resolve current lingering customer concerns.

The momentum for adoption of cloud computing technology in both B2B and supply chain business processes accelerated in 2012.  The reasons were a perfect storm of business forces.  High uncertainty surrounding the global economic climate across multiple industries drove cash preservation strategies and a consequent reluctance to expend high levels of up-front capital. Multiple disruptions and challenges affecting industry supply chains uncovered needs to quickly augment business processes and enhance needs for broader intelligence and quicker decision-making.  Cost control initiatives turned more towards aggressive reduction in IT owned infrastructure and consequent annual operating and applications integration costs.  Small and medium sized businesses were especially attracted to cloud options because of the factors noted above. All of these business and functional forces made cloud computing a more attractive option.

We expect this trend to continue in 2013 along with augmentation of cloud computing with managed supply chain services.  We concur with IDC’s prediction that industry focused Platform-as-a-Service (PaaS) information, collaboration, control and decision-making models, hosted in a cloud environment, will gain more interest and adoption over the coming months and years. The open question remains which cloud model will be preferred, private or public.

Enterprise vendor SAP, in its Sales and Operations Planning, powered by SAP HANA application, is a cloud based offering that manages one of the most critical business decision processes for any firm.  Similarly, Oracle has long-term plans to offer a full supply chain management support capability via private or public cloud platforms. IBM has been building-out a broad offering of cloud-based, B2B support applications that address mission critical processes of customer fulfillment and supply chain resource management.

However, the growth of these options in cloud computing will be dependent on the ability of technology vendors to resolve fundamental and lingering customer concerns surrounding cloud computing. Many vendors have shown a bit of arrogance in constructing legal agreements surrounding cloud computing contracts.  They insert clauses in contracts that absolve the cloud provider from any and all liabilities, and in some cases, state that the client will hold ultimate responsibility for anything that goes wrong, including data loss. Prospective customers are compelled to seek legal advice, only to discover that the customer’s maximum recovery is capped, or would have to initiate an expensive and time-consuming lawsuit to recover any business interruption or data breach damages.  In an article published in December 2012, Legal concerns curb corporate cloud adoption, ComputerWorld magazine quotes prospective customer attorneys as describing certain technology vendor contract terms are “offensive”.  Since cloud computing is a recent phenomenon, legal precedents are lacking relative to liability and recovery.

Up to now, cloud computing options directed at point applications or non-mission-critical processes may have caused procurement and supply chain functional management teams to overlook or dismiss such provisions. But, as cloud computing options involve much broader, mission critical supply chain processes, the need for legal checks and sign-off are evident, and ComputerWorld points to increased discussion and some confrontation among legal counsel, IT and functional executives, which could slowdown cloud adoption.

Another significant and related concern is that of information security. The year 2012 featured more troubling headlines of hackers penetrating critical industry systems.  Some of the world’s most prestigious banks were collectively targeted in attacks by sophisticated and organized hacking groups, as were hydrocarbon production facilities in Saudi Arabia where a virus attack almost took down production of 10 percent of global oil supply. Experts are unsure if latent time-bombs remain in these systems, set to activate a data breach at a certain date.

Higher visibility to interruption of mission critical business services also came to light in 2012.  In late December, Netflix suffered an overnight suspension of all of its video streaming services because of a technical problem at its hosted IT infrastructure provider, Amazon Web Services (AWS). This was the third major reported AWS service interruption in 2012, the others involving customer services for Foursquare, Pinterest and Instagram.

As noted, supply chain planning and customer fulfillment systems often fall into the category of a mission-critical business process, subject to internal control and reporting processes. Many of these increased security developments fuel lingering concerns among executives regarding information that may be stored and accessed in a public or hosted cloud.  Developments such as these motivate senior executives to continue to favor private based cloud options relative to B2B and supply chain needs.

While larger enterprise type vendors have the financial clout and other global resources to address such concerns, smaller vendors may be at a disadvantage.  Vendors often utilize third-party IT infrastructure service providers to host their cloud offerings, which again raises questions as to which parties have ultimate accountability and liability, and how that may relate to the customer’s declared internal control processes.

A continued highly uncertain economic environment and a need for more responsive implementation of automation directed at global supply chain responsiveness and resiliency will continue to fuel cloud computing interest in 2013, provided that vendors respond to security, control and contractual related customer concerns.

This concludes our series of deep dives concerning 2013 Predictions for Global Supply Chains.

We extend a loud shout-out to all global supply chain professionals for their incredible achievements and responsive actions during 2012.  Another challenging year has passed and yet another is forthcoming. Then again, supply chain is never boring.

We trust that our ten 2013 predictions help you and your supply chain teams to think about objectives and resource plans and be adequately prepared in 2013.

The full complete copy of our 2013 Predictions for Global Supply Chains, which includes even more detail, will be shortly made available in a no cost research report available for download in our Research Center. We will advise when the final report is ready.

Throughout 2013, Supply Chain Matters will be providing additional insights related to each of our ten prediction areas, including both an interim and end-of-year report card.

As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.

Bob Ferrari

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