There have been new developments this week in the area of major product recalls which warrants some Supply Chain Matters commentary.

The Saga of Johnson and Johnson Continues

The news headlines this week featured the announcement on the nationwide recall of more than 13 million packages of chewable versions of anti-acid drug Rolaids after reports by consumers of finding metal and wood particles in products.  Rolaids is a business unit of Johnson and Johnson’s McNeill Consumer Healthcare Group who has been challenged by a litany of previous other product recalls of millions of bottles involving suspected quality of products.  Stellar brands such as Tylenol and Benadryl were previously included in large product recalls and now another comes to the forefront.

To its credit, J&J and McNeill have instituted a large-scale corporate action plan to address manufacturing quality and control processes and have also taken the extraordinary step in the shutdown of McNeill’s Fort Washington PA manufacturing facility while all production processes and equipment are reexamined for remedial needs.

What makes this new recall even more troubling is that it involves production that occurred at an unnamed third-party manufacturing facility, and thus the quality crisis takes on a broader supply chain perspective.  A New York Times article notes that the U.S. Food and Drug Administration (FDA) has additionally cited a McNeill plant in Puerto Rico for distributing products that failed quality requirements along with other serious issues dealing with conformance to Good Manufacturing Practices (GMP).

On the regulatory and political front, this latest incident only increases the negative attention turned toward J&J’s practices.  The House Committee on Oversight and Government Reform through a spokesperson has indicated that this latest incident will add to committee efforts to seek answers from J&J and the FDA on the safety protocols in place at all J&J related facilities.

Meanwhile the financial implications related to this perceived breakdown in manufacturing quality continue to build for J&J.  Earlier estimates were that the plant closure would reduce sales by $600 million, not to mention an estimated $100 million plus investment in re-tooling plant production processes.  Other trade reports have indicated that consumers are now opting to purchase other brands, including generic ones, because of their concerns relative to the overall safety of  J&J brands.  Wall Street analysts are now speculating that J&J may decide on other plant closures, and some ratings on J&J stock are being degraded.

Readers may recall previous academic studies that correlated various disruptive supply chain events to consequent periods of degraded shareholder performance. In the case of J&J, there is yet another case-study reinforcement.  A company with a previous stellar reputation for product quality and consumer responsiveness is in crisis, and that alone should be a sobering signal to other industry players on the importance of identifying, understanding and mitigating all aspects of potential supply chain risk.

The Aftermath of the Massive U.S. Recall in August

The Associated Press reported that egg sales in the U.S. have started to rebound after the massive Salmonella-related recall involving 550 million eggs produced and distributed by Iowa based farms associated with conglomerate DeCoster Egg Farms. Retail egg sales in August were reported to be down 9 percent, making it the slowest month in at least two years. By November, retail sales assumed just about normal levels.  Some specialty egg producers, those with reputations for higher quality or organic actually benefitted from the crisis.

The article notes that U.S. consumers tend to have short memories, especially when dealing with such a widely adopted food staple as eggs. Consumers apparently have this belief that problems will eventually get solved.  Perhaps U.S. consumers need to reflect on the beliefs held by Chinese consumers, who after the massive contaminated milk scandals of two years ago, still have issues in the trusting of brands related to Chinese owned dairy farms.

The egg industry has spent about $1 million on an ad campaign that emphasizes a commitment to food safety.  Apparently, the belief that marketing can cure all ills remains. To its credit, one nationwide producer, Dixie Eggs actually hired a full-time director of food safety, a responsibility that was previously split among several other people. We applaud Dixie for its action. Other producers need to step-up their commitment to quality, beyond just marketing.

While U.S. consumers continue to exhibit short memory spans, we at Supply Chain Matters will at least attempt to keep a watchful eye on industry developments and comment on real efforts by the industry to actually improve quality and safety standards.  If industry players believe they have a real story to tell, than convince us.  Otherwise, let’s  sincerely hope that we do not have to revist yet another development in a large scale recall of egg and egg-related products.

Bob Ferrari

We have previously commented on Supply Chain Matters about the very large recall of eggs in the U.S. that occurred in August. On August 13, Wright County Farms of Galt, Iowa, an entity associated with DeCoster Farms, voluntarily recalled over 228 million “shell eggs” because of the potential for Salmonella Enteritidis contamination. These eggs were distributed to food wholesalers, distribution centers, supermarkets and foodservice companies across eight U.S. states.  The U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture(USDA)  have since conducted separate investigation to determine the source of the contamination and a strong suspicion points to the feed provided to the various hens, although no definitive conclusions have been released to date.

The latest twists to this ongoing incident came transpired this week in various print and televised media as Austin “Jack” DeCoster and his son Peter DeCoster were scheduled to testify before a U.S. Congressional subcommittee meeting.  This Congressional body asked both men to come prepared to explain what steps have been taken to address the contamination that occurred at their two farms in Iowa.

In a classic move, both men indicate that they believe an ingredient sold to them by an outside supplier was possibly to blame for the contamination outbreak.  That’s right, if there is a problem, it surely has to be the supplier who is suspect. Yet, various reports from governmental inspectors seem to indicate that feed shipped to these farms was subsequently contaminated by being either co-located or coming in contact with unsanitary conditions on the chicken farms themselves.  Government inspectors described conditions at the Wright County henhouses as including mice, maggots and piles of manure as high as eight feet.

Doesn’t that make you feel wholesome and good!

According to news reports, a U.S. House subcommittee also found that Wright County Egg had received hundreds of positive salmonella readings in the last two years, which should have also raised red flags.

But there is something even more profound to this ongoing story.  Jack DeCoster stated in his testimony to the following: “We were horrified to learn that our eggs may have made people sick and we apologize to every one who may have been sickened by eating our eggs.  I pray several times each day for all of them and for their improved health.”

Here is this blog’s response to Mr. DeCoster- too little and too late, my friend.  The damage and the effects have already been done.  What are you personally going to do about it, and what steps are your various farms going to take to assure consumers that these incidents will not continue?

If there is any learning that can be gained for all of these types of incidents is that the time for sincere apologies is when the problem is initially discovered, and not weeks later, when all the lawyers and public relations teams have been called-in to ascertain the damage recovery plan.  In this new era of social-media and instant news, the negative impressions and reactions have already been made, and the virtual world has already weighed-in on their opinions of Wright County Farms and parent DeCoster Farms.  The most scathing indictment within the blogosphere came from Robert Reich, Professor of Public Policy at the University of California at Berkeley, who penned his Corporate Rotten Eggs commentary which described his previous dealings with the DeCoster conglomerate while serving as U.S. Secretary of Labor under the Clinton Administration. The impressions are made and consumers want to know, what are you going to do about it?

Jack DeCoster indicates that his companies grew too fast, still acting like a small farms.  Yet others describe the DeCoster operation as ‘big agribusiness”, and as Professor Reich noted, the current national salmonella outbreak is just the latest in a long series of DeCoster corporate crimes. “He’s fostered a culture that disregards any law standing in the way of profits. Along the way, DeCoster has abused the environment, animals, his employees, and his customers.”, noted Reich.

In the end, which statements will consumers really believe?  Perhaps we should ask all those who were actually sickened by salmonella, or who had to work on these suspect farms.

Consumers expect that products are safe, meet superior quality standards, and are produced in an environmentally and worker safe manner.  Consumers should not expect to settle for apologies and a wish for a speedy recovery, but some real action by DeCoster to insure clean farms and a safe egg supply.

Bob Ferrari

There have been growing concerns about the eroding safety of our food supplies and Supply Chain Matters has had far too many postings noting incidents of contamination affecting the safety of food-related supply chains.  I suppose that the latest incident involving the recall of hundreds of millions of eggs in the U.S. should not be a surprise, but the scope and circumstances are again rather troubling.  In this new era of social media explosion, these types of incidents can bring tremendous amounts of negative perception and damage to brands. They also cause too many disruptions for supply professionals.

On August 13, Wright County Farms of Galt, Iowa, an entity associated with DeCoster Farms, voluntarily recalled 228 million “shell eggs” because of the potential for Salmonella Enteritidis contamination. These eggs were distributed to food wholesalers, distribution centers, supermarkets and foodservice companies across eight U.S. states, involving eggs shipped from May 16, 2010.  Thirteen different brand names were involved in this recall, and because whole eggs are the basis for an ingredient in other food products, there are probably unspecified aspects as to the total scope of this recall, and the potential for human illness.  The U.S. Food and Drug Administration (FDA) issued a recent news release outlining the details of this recall.

As I pen this commentary, the recall has now expanded to 380 million eggs involving seventeen U.S. states. All five farms owned by Wright County Farms are under suspicion as sources.  An article on Reuters notes that the amount of eggs recalled are equivalent to nearly all the eggs consumed by all Americans in two days, which is rather a significant exposure. Nearly 2000 cases of salmonella were officially reported to U.S. government agencies from May thru July, a period where 700 cases would have been considered the norm. The U.S. FDA has fifteen investigators currently working on tracking the sources or potential causes of the infection. This recall has significant supply chain implications because uncooked eggs can end up salad dressing, meringue pie or other food or restaurant items.

As was noted in recent recalls such as pistachios, potentially contaminated product has been in the supply chain, undetected until now, for at least three months.  One also has to wonder why an egg enterprise with such a wide distribution of product and private brand volume had this type of occurrence.  The FDA notes that new egg safety standards took effect on July 9 which requires producers to safeguard feed and water supplies and test poultry houses for salmonella, In the case of Wright Farms, one has to speculate if these regulations came too late.

Bob Ferrari