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

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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.

 

 


Supply Chain Sourcing Taking on More Geo-Political Significance

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In this new era of geopolitical risks, the critical importance of supply chain management sourcing strategy was again brought to light in a published article by The Wall Street Journal. The report, When Currencies Fall, Export Growth Is Supposed to Follow- Until Now (Paid subscription required), questions common theory that a weaker currency is a boon to export growth. The reason stems from existing supply chain sourcing realities.  Container Term 300x200 Supply Chain Sourcing Taking on More Geo Political Significance

The report specifically examines a test case reflected by the ongoing effects of Brexit to the manufacturing sector of the United Kingdom. As Supply Chain Matters has profiled in a prior posting, the country’s decision to initiate efforts to exit the European Union, caused the British pound sterling to fall significantly. The effect was that products exported, such as chemicals, autos or aircraft parts became more price competitive in global markets. That obviously raised expectations for boosted economic growth, and indeed the PMI indices for the UK have been generally rising.  The evolving reality as depicted by the this latest WSJ published report, is that supply chain sourcing strategies that resulted in significant dependencies on importing value-chain components and/or raw materials served to have generally served to offset any lower price advantages of produced goods.

One specific example profiled was auto producer Aston Martin which exports a reported 80 percent of its vehicles to foreign markets. Post Brexit, with the decline in the value of the pound in low double-digits, Aston sales resulted in as much as 12 percent in additional sales margin. However, an industry reality that many automotive component suppliers are primarily based in offshore lower-cost locales presented the effect of increased costs for imported materials.  That has reportedly offset sales margin gains. Likewise, retail prices of many consumer items that are often imported into the UK have risen significantly since the Brexit referendum decision.

A contrast provided is that of the whiskey industry in Scotland, where the bulk of the product value is generated and produced locally and where producers have now been able to reap the rewards of increased export sales as well as profits. With the majority of the end-product locally sourced, a devalued currency has provided meaningful economic benefits for this industry.

The WSJ report makes note of two recent papers from both the World Bank and the Organization for Economic Cooperation and Development (OECD) that both found that movements in exchange rates had a declining impact on trade in advanced economies.

The sum of these developments is noted to be the same conclusion, that industries and companies have become more embedded in global supply chain sourcing.  Cited as evidence is an OECD statistic indicating that between 1995 and 2011, the import content of exports rose from 14.9 percent to 24.3 percent among OECD nations. Obviously, beneficial for developing, lower-cost manufacturing regions.

From our Supply Chain Matters lens, the evolving data again points to ongoing conflicts among individual companies, who’s product value-chain strategies are driven primarily by overall profitability, manifested by landed and total cost considerations, and on individual governments who must strive to grow domestic economies and employment. Specific case in point is the ongoing manifestations of the Trump Administration’s Make America Great policies that are reflected toward existing global trade policies.

Increasingly, economists and political leaders, have begun to question the overall benefits of globalization in the context of impacts to local economies, social responsibilities and to long-term economic growth. The spillover to existing global supply chain sourcing strategies seems inescapable.

Geo-political forces surrounding global trade are likely to occupy the attention of many industry supply chain teams, all of whom must be prepared to deal with near or longer-term implications. The takeaway for industry supply chain sourcing, procurement and overall supply chain leaders will continue to be the need to be well informed as to ongoing international geo-political events that will impact certain industries, and to ensure that respective C-Suite executives are well informed as-well.

In late September, this Editor is scheduled to deliver an Accenture Academy Trend-Talk online seminar: Supply Chain in an Anti-Trade and Anti-Globalization Era. We will be sharing further details in the weeks to come.

Stay tuned.

Bob Ferrari

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

 


A Commentary Related to Denying Efforts to Combat Global Climate Change

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Last week, President Donald Trump announced that the United States intends to withdraw from the Paris Climate Agreement. Speaking from the White House, the President indicated he was open to renegotiating aspects of the Paris COP21 Agreement, which was inked under his predecessor and which all nations except two have since signed onto. Paris COP21 A Commentary Related to Denying Efforts to Combat Global Climate Change

Needless to state, the responses to this decision have been widespread and voluminous. Preparing to scribe this blog, we performed a Google search on the terms- “President Trump withdrawal from Paris Climate Agreement”, which yielded over 8.4 million search responses. Obviously, such a number represents a significant amount of reaction, much of which has not been complimentary to the decision, both at home and abroad.

White House communications teams indicated that the decision favors the views of America’s businesses in that the accord did not provide adequate benefits for companies and their employees. Yet, after the announcement of the decision, Twitter and other social media featured direct postings from a multitude of well-recognized CEO’s indicating their disappointment in the decision, and that regardless, their company’s efforts in sustainability actions and commitment will continue. Likewise, over 200 Mayors of U.S. cities, 10 U.S. state governors, and other political leaders collectively indicated that sustainability efforts must continue. The States of California, New York and Washington immediately formed a coalition to unite efforts and share learning in fighting global climate change.

Included in our 2017 Predictions for Industry and Global Supply Chains is our declaration that business, and indeed, our planet’s future, will fuel continued efforts in supply chain sustainability actions and focused initiatives, regardless of any political developments.

We re-iterate that statement in the light of last week’s rejection by President Trump of any U.S. commitment.

As we all began 2017, scientists indicated that the Earth reached its highest temperature on record, the first time in the modern era of global warming data that average temperatures have exceeded prior levels for three years in a row. The Artic Sea has experienced a record ice melt, and the Great Barrier Reef suffered an unprecedented coral breaching in 2016.

Industry supply chain teams know first-hand, the increased impacts of global warming have had on more frequent supply chain disruptions, concerns and actions addressing sustainable and less costly forms of raw materials, food, energy, and commodities. Across many industry supply chains, a lot has already been accomplished in identifying opportunities related to reducing industry supply chain related GHG emissions, preserving natural resources including water, and insuring sustainable supply of Earth dependent commodities. Multi-year objectives have been established that include annual tracking of performance to each objective. The benefits of these initiatives are meaningful in relation to savings on supply chain related costs, reductions in responsible emissions, insuring adequate supply of key strategic supply needs and a more positive perception to one’s corporate and product branding.

In 2017, despite any U.S. political notions that climate change may or may not be a significant factor for business risk, industry supply chains and the respective businesses and customers they support and serve, will be at a disadvantage in de-railing or slowing down sustainability efforts.

Benefits have already been recognized along with added opportunities.

From our lens, the ongoing convergence of digital and physical business processes manifested by Internet of Things (IoT), more predictive analytics, autonomous decision-making and additive manufacturing will provide added opportunities towards sustainability needs and objectives.

Supply Chain Matters therefore urges supply chain leaders and their respective teams to re-double ongoing sustainability efforts in all forms. Such efforts are good for business and ever more important, essential for the future of the planet. To do otherwise is short-sighted.

Bob Ferrari

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


Component Part Snafu Impacts BMW Production of Multiple Models

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Sales and Operations Planning (S&OP) and procurement teams understand that a parts shortage originating in the lower-tiers of the product value-chain can provide a noteworthy overall supply chain disruption.  Last week, luxury car producer BMW AG experienced such a situation, a component shortage that impacted the production schedule of multiple models.

BMW 4 Series 450 Component Part Snafu Impacts BMW Production of Multiple Models

Source; BMW

According to published reports, the German luxury car maker is slowing or halting production of certain models in response to a shortage of parts caused by delivery problems from supplier Bosch GmbH. The hiccups in the reportedly normally smooth operation show how dependent manufacturers are on a global, smoothly running supply chain.

In last week’s BMW’s case, the culprit is noted as a “Lenkergetriebe,” or steering gears used in BMW’s 1-Series, 2-Series, 3-Series, and 4-Series compact cars. Reports point to the supply disruption caused by a bottleneck at an Italian company that supplies the casings for Bosch’s electronic-steering systems. Bosch has since dispatched employees to Italy to help resolve the problem.

A report published in both the Financial Times and the Irish Times, quotes a BMW spokesman indicating that the 1- and 2-Series cars had come to a standstill on Friday and Saturday, whereas production of the i3 and i8 electric cars was running as normal. The plan, reportedly was to resume production by today, but BMW conceded yesterday that the “situation is unlikely to change this week”.

Bloomberg reports that BMW will seek financial compensation from Bosch. BMW purchasing chief Markus Duesmann indicated on Monday in an emailed statement to Bloomberg that there is only limited vehicle production at various German plants, while factories in Tiexi, China, and Rosslyn, South Africa, have moved up or extended planned interruptions.

No doubt, the current component supply shortage will be rectified.  As is the case for many of such incidents, the question is how soon.

Once again, another current day reminder that in today’s globally extended manufacturing and supply chain networks, a snafu or glitch at any tier of the value-chain can have widescale impacts without adequate supply chain risk mitigation planning.

Bob Ferrari


Yet Another Significant Supply Chain Risk Looming

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Here at Supply Chain Matters, we often highlight for our readers’ important areas of industry supply chain risks. That is why recent published reports by Bloomberg Businessweek and by Reuters specifically regarding South Korea caught our attention. Our readers have most likely been reading and hearing of growing tensions between the United States and North Korea over the latter country’s continued development of a missile system.

The Bloomberg Businessweek report, A Korean War Could Cut Pipeline of Vital Technologies to the World (Paid subscription required) indicates that: “If South Korea were to be hit by a missile, all high-tech electronics production will stop.” Noted is that the globe’s premier manufacturing center for advanced organic light-emitting diode (OLED) panels, the LG Display Co. facility in Paju, is in just a 15-minute drive from the Demilitarized Zone that separates North and South Korea, and within easy range of North Korea’s artillery capability. Further reported by Bloomberg is that about 12 percent of Apple’s existing suppliers are from South Korea, with LG Display being one of its largest suppliers. Once more, South Korea’s semiconductor manufacturers, including SK Hynix and Samsung Electronics reportedly supply tw0-thirds of the world’s electronic memory chips. A manufacturing supply disruption here would impact not only high-tech and consumer electronics, but various other equipment sectors as-well.

Reuters concurs that any interruptions could significantly disrupt global manufacturing of smartphones, televisions, computers, and tablets, but further notes that investors continue to pour money into South Korea’s equity markets, despite such risks.

Risks among other industry supply chain sectors are also noted.

Two of South Korea’s most prominent drug makers, Samsung BioLogics and Celltron have facilities located in a special economic zone located about 25 miles from the DMZ.

South Korea also hosts three of the globe’s largest shipbuilding firms, Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries, and according to the report, two could be likely targets because they produce war ships.

The Bloomberg report raises concerns for South Korea’s logistics and transportation facilities being disrupted, which potentially could impact multinational manufacturers such as Hyundai and Kia Motor.

While businesses in this region have continually be sensitized to business risks because of their specific proximity to North Korea, most firms have forms of supply chain or other risk mitigation plans.  However, as noted from industry experts interviewed by Bloomberg, tensions this time seem far higher, along with the overall scope.

The takeaway from both reports are that a war with North Korea could indeed paralyze the global electronics industry and disrupt vital trade routes in the Pacific. While tensions in the area are not a new phenomenon, and have been accepted for many years, the unanswered question remains if the building escalations are now different, with added concerns.

Supply Chain Matters would additionally add that certain leading-edge high-tech producers have their supply chain risk mitigation teams sensitized to conducting various risk contingency scenario analysis and contingency planning. That would include augmenting some safety stock levels for certain top-line revenue components as well as back-up sourcing scenarios of alternative suppliers of DRAM and other electronics components. In the case of OLED displays, such back-up plans may have limitations due to an inherent shortage of the technology.

Yet other stark reminders of global supply chain risk.

Bob Ferrari

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


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