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2012

     The growth of counterfeit medicines is not a situation limited to occurring in a few countries but is instead, an international problem. Indeed, a new report commissioned by an international pharmaceutical trade body highlights the need for greater coordination among international stakeholders in the fight against counterfeit, or what it also terms, “falsified,” medicines.

 

     An article that ran in Securing Industry notes that the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) report concludes that the World Health Organization (WHO) “is uniquely placed to add value to governments’ efforts to protect against all forms of pharmaceutical crime, along with those of local regulators and other national and international agencies.”

 

     The problem certainly is global. For example, last fall, the U.S. Food and Drug Administration (FDA) announced that it—in partnership with international regulatory and law enforcement agencies—took action against more than 4,100 Internet pharmacies that illegally sell potentially dangerous, unapproved drugs to consumers. The actions that were taken resulted in the shutdown of more than 18,000 illegal pharmacy websites and the seizure of about $10.5 million worth of pharmaceuticals worldwide.

 

     The IFPMA report, which was conducted by researchers at University College London (UCL) School of Pharmacy and research agency Matrix Insight, states that WHO activities should be linked to regional working groups that engage directly with national level public and private stakeholders in protecting health and assuring pharmaceutical sector regulation and effective policy implementation. Toward that end, it also calls for more investment in efforts to quantify medicines falsification and to provide early warning systems for counterfeits “as soon as they are detected in legitimate supply chains.”

 

     There is already considerable convergence in the anti-falsification measures being adopted at national and regional levels to safeguard patients’ and the public’s health, says David Taylor, from the UCL School of Pharmacy, and one of the authors of the report. Recent research suggests that progress has been achieved, but additional surveillance-backed, systematically-supported and globally-coordinated efforts could do more to protect against falsification and improve health, he says.

 

     As the report points out, both branded and generic medicines can be falsified and sold for profit. Those making the counterfeit medicines avoid not only research and development costs but also that of following good manufacturing practice. Furthermore, as a consequence of evolving technological capabilities, it also is increasingly easy to make difficult-to-detect fake packaging.

 

     As expected, there are significant challenges for this type of international initiative. Chief among them, according to the report, is the ability to maintain funding. Secondly, as previously noted by Taylor, another key challenge is global surveillance and world-wide intelligence gathering, information sharing, and policy formation. The report explains that this high-level governmental leadership function should arguably be coordinated by the World Health Organization working in partnership with other appropriate organizations and individuals.

 

     The report goes on to say that the involvement of other stakeholder groups, ranging from international agencies such as Interpol or the World Customs Union to major NGOs and individual regulatory agencies, consumer and patient organizations, professional and industry bodies and/or local police forces and customs organizations will need to be flexible and appropriate to local conditions. It should be decided in a manner designed progressively to build development capacity and wider inclusiveness, and to ensure the uncensored flow of validated information within and between communities, the report concludes.

 

     What do you think about stopping the flow of counterfeit medicines? Is it best tackled at the national level or is it better to have an organization such as WHO coordinate international efforts?

     It now appears the impending strike at East Coast container ports may occur after all. Over half of the ocean cargo containers coming to and from the U.S. go through the East or Gulf Coast ports, according to the Journal of Commerce, so the impact of such a strike could be significant.

 

     Indeed, the potential strike involves 14,500 dock workers at all major ports along the East and Gulf Coasts. Consequently a strike could cost the U.S. economy at least $1 billion a day because it would stop the flow of goods ranging from clothing and toys to televisions and furniture. The ports also accept many materials crucial to keeping U.S. factories running, such as auto parts and heavy machinery.

 

     Talks on a master contract covering 14 ports broke off in late August with leaders of the International Longshoremen’s Association and the U.S. Maritime Alliance accusing each other of bargaining in bad faith. The contract was set to expire Sept. 30. However, both sides met with the federal mediator, and they averted a possible Oct. 1 strike by agreeing to extend the contract for 90 days.

 

     An Associated Press story I saw on Boston.com reports that the latest talks between shipping companies and dockworkers broke down Tuesday, less than two weeks before the contract expires Dec. 29. The news implies a strike may now be inevitable.

 

     An article that ran on CNN.Money reports that the breakdown in talks prompted the National Retail Federation to write to President Obama late Tuesday asking that he use his powers under the Taft-Hartley Act to keep the dock workers on the job and keep the two sides talking. Unions generally oppose the use of Taft-Hartley to end strikes. Also, the Obama administration did not intervene during an eight-day strike earlier this month that shut down the ports of Los Angeles and Long Beach, which together handle more than a third of the nation's containerized cargo.

 

     The Associated Press story on Boston.com reports that the association’s letter to President Obama asked him to use ‘‘all means necessary’’ to head off a strike because the group fears such a strike could have catastrophic ripple effects nationwide.

 

     “We foresee this as a national economic emergency, to be honest,’’ said Jonathan Gold, the group’s vice president of supply chain and customs policy, the AP article reports.

 

     James McNamara, spokesman for the International Longshoremen’s Association, said in the article that the union knows what’s at stake for others but must protect its membership. The union provides the labor that keeps the commerce moving, he says. If management doesn’t appreciate or respect the labor that has made them a lot of money, then the union must do what it has to do, McNamara says.

 

     The longshoremen’s union represents 14,500 workers at the ports, which extend south from Boston, and handle 95 percent of all containerized shipments from Maine to Texas, about 110 million tons’ worth, the article explains. The New York-New Jersey ports handle the most cargo on the East Coast, valued at $208 billion in 2011. The other ports that would be affected by a strike include Hampton Roads, Va.; Wilmington, N.C.; Charleston, S.C., Savannah, Ga.; Jacksonville, Fla.; Port Everglades, Fla., Miami; Tampa, Fla.; Mobile, Ala.; New Orleans; and Houston.

 

     The problem is that with the deadline so near, companies are pushing up shipment dates or finding alternative transportation, said Steve Lamar, executive vice president of the American Apparel and Footwear Association. Companies are already worried about restocking after the holidays, and some are still dealing with the effects of the West Coast shutdown and Superstorm Sandy, he said.

 

     Obviously with the talks breaking off, it doesn’t bode well for the situation. However, there is still time for both parties to reach an understanding and avoid a strike.

 

     In the meantime, is the possible strike a concern for your company? Is there a contingency plan in place in case there is a port strike?

     As has been noted before, Mexico’s appeal for production continues to grow among companies interested in near-shore opportunities. That’s increasingly true for companies concerned that China’s labor pool is becoming shallower, labor costs are climbing as workers demand higher wages, and manufacturing costs are increasing overall as land and energy prices escalate. There also are long leads times for companies to manage; it can take 15 to 20 days for cargo ships to reach U.S. shores from China.

 

     Continuing the argument for adding operations in Mexico, a SupplyChainBrain article notes that the ever-improving supply chain infrastructure, a low-cost but increasingly skilled labor force, short shipping distances, and successful economic reform efforts combine to make Mexico more attractive for cross-border industrial opportunities, according to a new report by Jones Lang LaSalle (JLL).

 

     The aptly named report, “Five reasons to consider Mexico for manufacturing and logistics,” highlights key reasons investors should look closely at Mexico’s industrial opportunities. For starters, Mexico’s economy is strengthening, and the impact of crime is not significant in most markets. For example, Mexico is now the seventh-leading auto manufacturer in the world and the second-largest supplier of electronic products to the U.S. market. While violence related to drug trafficking and organized crime rose by 11 percent in 2011, despite common opinion, the problem is mainly a regional one, the report states.

 

     Next there is Mexico’s low-cost yet highly skilled workforce. Interestingly, Mexico’s labor costs are lower than many of its global competitors but the skills of its workforce are rising. Furthermore, the pool of working-age individuals is approaching 62 million, and workers are becoming increasingly affluent and well educated. Indeed, the literacy rate now is more than 93 percent, the report states.

 

     I was surprised to learn that investment in Mexico’s supply-chain infrastructure, spurred by the privatization of the country’s major industries, has resulted in $226 billion in rail, roadway, and port improvements since 2006—a 50-percent increase over the previous six years. Specifically, Mexico’s rail shipments as a percentage of overall freight shipments have risen from 8 percent in the 1990s to about 20 percent today, and U.S. rail companies are investing in infrastructure improvements to capitalize on growing trade volumes at major ports such as the West Coast port of Lazaro Cardenas.

 

     At the same time, truck shipments, which rose by 11.4 percent in 2011, still eclipse freight volume by approximately 300 percent. Encouragingly, the Mexican government continues to invest in improvements to its major highways and border crossings to speed up delivery times. It is worth noting that goods shipped from Central Mexico can reach Chicago in about three days.

 

     Finally, perhaps most importantly, Mexico is an eager business partner. Investors increasingly benefit from Mexico’s trade agreements, export programs, and overall movement toward operational transparency. Mexico now has free-trade agreements with 43 nations, compared to 20 in China and 15 in the U.S. Additionally, in a move to encourage foreign investment, Mexico has created export promotion programs to reduce or eliminate import, value-added, and customs operation taxes.

 

     All of this is not to imply that manufacturers should necessarily leave China and relocate operations to Mexico. It does point out, however, that when considering total landed cost, it may make sense in some cases to give the idea careful thought. That’s even more true when other factors such as that electricity is less expensive in Mexico than it is in China, and that trans-Pacific freight costs are expected to increase five percent annually over the medium term, are evaluated as well.

 

     What do you think? Is your company considering moving some operations to Mexico, or perhaps launching new operations there?

     As the year ends, it offers a logical opportunity to both look back at this year and look ahead to next year, and then reflect on trends and necessary actions. So, for instance, an article I saw on SupplyChainBrain pointed me to a survey which shows demand uncertainty remains the key concern for supply chain mangers.

 

     LifeWork Search, a recruitment organization focusing on the supply chain, asked its network of supply chain individuals what they believe the top supply chain concern was for the 2012 holiday season. The survey results show that 59 percent of the respondents believe demand uncertainty to be the top supply chain concern within their organization. There were, of course, other concerns. However none came close to being cited as frequently as demand uncertainty. For example, 18 percent of the respondents cited inventory surplus as the top concern, 12 percent answered inventory shortage, while 8 percent believe lead times are the top holiday supply chain concern.

 

     The firm conducted the same poll two years ago, and the results were similar.  In December of 2010, 45 percent of the respondents named demand uncertainty as the top holiday concern. Interestingly, inventory surplus and inventory shortage both were cited by 18 percent of the participants, while 12 percent of the respondents said lead times were their key concern.

 

     The holiday season has been improving year to year since the economic downturn, yet companies are still uneasy with their predictions on consumer spending, says Jason Breault, Managing Director of LifeWork Search. Forecasting still remains a top concern for many organizations, especially those caught off guard by the recession because they did not have a demand planning process in place. An accurate demand plan can save a company millions of dollars, he says.

 

     A recent Supply Chain Management Review article follows a similar vein. While that article examines trends rather than survey results, it nonetheless notes that companies increasingly focus on demand and supply planning because they are critical for supply chain success.  However, the ability to execute on the plan when forecast errors occur results in the need to focus more on execution. Forecast errors, or the difference between what is planned and what actually occurs, are driven by every day issues that can ultimately cause significant disruptions. The ability to react efficiently and effectively is critical to every supply chain, and that reaction relies heavily on end-to-end supply chain process visibility at the transaction level, the article continues.

 

      The flip side of that concern is contingency planning, and the SCMR article also notes that there is a resurgence in such efforts. As supply chains become more lean, the resulting low inventory levels require the ability to react quickly when abnormal events occur. Because these events now occur more frequently, the ability to respond to them quickly and in an effective manner is critical so companies do not face severe revenue losses. This leads to the resurgence in contingency planning as companies strive to ensure supply chain functions continue even in emergency situations, the article continues. More importantly, companies want to know how well they performed against their plan and if the plan was truly followed. That’s because when a crisis occurs, individuals typically have the tendency to find “work arounds” to resolve the issue as quickly as possible. Those work-arounds may not necessarily be in the company’s best interests, so companies increasingly focus on developing contingency plans, executing those plans, and determining in real time if their plans are effective.

 

      As you take stock of the past year, what are your thoughts on managing volatile demand and supply? Secondly, considering demand, supply chain disruptions stemming from weather or other circumstances, or perhaps even both, has your company been focusing on contingency plans and the ability to increase responsiveness?

     Although the recent West coast port strike has ended, another possible strike is on the minds of many supply chain personnel along the U.S. East and Gulf coasts. Talks on a master contract covering 14 ports broke off in late August with leaders of the International Longshoremen’s Association and the U.S. Maritime Alliance accusing each other of bargaining in bad faith. The contract was set to expire Sept. 30 but both sides met with the federal mediator, and they averted a possible Oct. 1 strike by agreeing to extend the contract for 90 days.

 

     George H. Cohen, director of the Federal Mediation and Conciliation Service, said progress was made on several important subjects, prompting both sides to agree to extend the contract through Dec. 29—after the holiday season and the elections. In taking this significant step, both parties emphasized that they are doing so for the good of the country to avoid any interruption in interstate commerce, Cohen said in a statement.

 

     Now, however, December 29th is fast approaching, and the concern is that a strike is on the near horizon. Maritime Executive reports that according to  Marsh Risk Consulting, a potential labor strike by longshoremen along the U.S. East and Gulf Coasts at the end of the year could have devastating economic consequences as inventory depletion, rerouting, hoarding, and price speculation ripple through supply chains of global companies. Companies not prepared for such disruption could face adverse operational and economic impacts including increased expenses, decreased revenues, loss of market share, and reputational damage. Furthermore, in its report, titled US Port Strikes—What’s at Stake and How to Manage Your Risk, Marsh explains that for each day of backlog accumulated during a port closure, effected organizations would typically need about eight days to stabilize inventory levels within their supply chains.

 

     It certainly appears a strike is a strong possibility. On Monday, Midwest Shippers Association reported that International Longshoremen’s Association (ILA) President Harold Daggett won authorization from ILA delegates to call a strike if the bargaining impasse isn’t settled before the union’s contract expires Dec. 29. That news came amid notice that the ILA and the United States Maritime Alliance were set to continue their negotiations (last Monday) under federal mediation oversight.

 

     The ability to move goods freely is an essential component of the global economy, says Gary S. Lynch, Global Leader of Risk Intelligence and Supply Chain Resiliency Solutions for Marsh Risk Consulting and lead author of the report. This potential crisis on the East and Gulf Coasts and the substantial economic losses that occurred during the recent West Coast strike demonstrate why global businesses must be prepared for powerful and possibly crippling disruptions that can happen without warning, he said.

 

     “Those companies with the right portfolio of risk strategies can more effectively protect themselves from potentially severe losses, while simultaneously gaining market share from less-prepared competitors,” Lynch says.

 

     So what can companies do to prepare their supply chains for a potential port strike? According to Marsh’s report, companies have many options when designing and implementing a risk management portfolio to respond to a port strike. In addition to port-of-entry diversification, companies also should consider various alternative sourcing and buying strategies, changes to their manufacturing process, and risk financing solutions—including voyage frustration and trade disruption insurance.

 

     What I’d like to know is if your company has created supply chain risk management strategies to mitigate potential shocks such as a looming port strike. Is there a strategy in case there is a major port strike?

     The fiscal cliff isn’t the only cliff in the news lately. Indeed, the so-called patent cliff is causing a great deal of turmoil in the pharmaceutical industry. Estimates indicate more than 40 brand-name drugs valued at $35 billion in annual sales have lost their patent protection. That means generic companies were able to make their own lower-priced versions of well-known drugs such as Plavix and Lexapro—and share in the profits too.

 

     Pharmaceutical researcher EvaluatePharma estimates there are $290 billion of sales at risk from patent expirations between this year and 2018, according to an article that ran recently in Fierce Pharma. Furthermore, EvaluatePharma has determined that in 2013, patents will expire on drugs that currently have sales of $29 billion annually. The research firm expects more than 70 percent of that total will be lost to generics.

 

     Many generic drug makers are scrambling themselves, in efforts to redefine themselves either by specializing in hard-to-make drugs, selling branded products, or making large acquisitions. The large generics company Watson acquired a European competitor, Actavis, in October, vaulting it from the fifth- to the third-largest generic drug maker worldwide, explains a recent New York Times article.

 

     Companies are certainly saying either they need to get bigger, or they need to get “specialer,” says Michael Kleinrock, director of research development at health industry research group IMS Institute for Healthcare Informatics, in the New York Times article. They all want to be special, he says. 

 

     As one consequence of the cliff, executives at generic drug companies say they will no longer be able to rely as much on the lucrative six-month exclusivity periods that follow the patent expirations of many drugs, the NYT article continues. During those periods, companies that are the first to file an application with the Food and Drug Administration, successfully challenge a patent, and show they can make the drug win the right to sell their version exclusively or with limited competition.

 

     The exclusivity windows can give a quick jolt to companies. During the first nine months of 2012, sales of generic drugs increased by 19 percent over the same period in 2011, to $39.1 billion from $32.8 billion, says Michael Faerm, an analyst for Credit Suisse, in the NYT article. Sales of branded drugs, by contrast, fell 4 percent during the same period, to $174.2 billion from $181.3 billion, he notes.


     But those exclusive periods also make generic drug makers vulnerable to the fickle cycle of patent expiration. The only issue is it’s a bubble, too, says Kleinrock in the NYT article. He said next year, the generic industry would enter a drought that was expected to last about two years.  Of the drugs that are becoming generic, fewer have exclusivity periods dedicated to a single drug maker.


     In 2013, for example, the antidepressant Cymbalta, sold by Eli Lilly, is scheduled to be available in generic form. But more than five companies are expected to share in sales during the first six months, according to a report by Kim Vukhac, an analyst with Crédit Agricole Securities.

 

     Jeremy M. Levin, the chief executive of Teva Pharmaceuticals, the largest global maker of generic drugs, agrees. The concept of exclusivity where only one generic player could actually make money out of the unique moment has diminished, he says in the New York Times article. In the absence of that, he continues, many companies have had to really ask the question, “How do I really play in the generics world?”


     Some companies will rely on sheer number of products they offer as well as plans to cut costs. Teva, for example, announced last week that it intends to trim from $1.5 to $2 billion in expenses over the next five years. Other drug makers will also pursue difficult-to-make products such as extended-release tablets, patches, and creams in the hope that, with less competition, prices will not erode as quickly.

 

     So while some companies may not need to totally re-invent themselves, they will need to make changes sure to effect their own company as well as that of their supply chain partners. It will certainly be interesting to watch.

I’m interested in all aspects of actually getting goods to where they are supposed to be, so I have been following with interest the eight-day strike in the ports of LA and Long Beach. Negotiators finally reached an agreement to end the strike last night and workers are back to work today.

 

     The strike began Nov. 27, when about 400 members of the International Longshore and Warehouse Union’s local clerical workers unit walked off their jobs. The clerks—who handle such tasks as filing invoices and billing notices, arranging dock visits by customs inspectors, and ensuring that cargo moves off the dock quickly—had been working without a contract for more than two years. The walkout quickly escalated and closed 10 of the ports’ 14 terminals when some 10,000 dockworkers, members of the clerks’ sister union, refused to cross picket lines.


     At issue during the negotiations was the union’s contention that terminal operators wanted to outsource future clerical jobs out of state and overseas--an allegation the shippers denied. Shippers said they wanted the flexibility to not fill jobs that were no longer needed as clerks quit or retired. They also said they promised the current clerks lifetime employment.


     Here was the impact of the strike though: Combined, the Los Angeles and Long Beach ports handle about 44 percent of all cargo that arrives in the U.S. by sea. About $1 billion a day in merchandise, including cars from Japan and computers from China, flow past its docks. That cargo then is loaded on trucks and trains that take it to warehouses and distribution centers across the country.

 

     Closing 10 of the ports’ 14 terminals kept about $760 million a day in cargo from being delivered, according to port officials. The cargo stacked up on the docks and in adjacent rail yards. And in many cases, goods simply sat on arriving ships.


     Indeed, according to an article that ran in The LA Times on Sunday, about a dozen container ships were sitting offshore, unable to unload or load cargo. Furthermore, in that article, Dick McKenna, executive director of the nonprofit Marine Exchange of Southern California, which tracks ship traffic in the ports, said about 10 more ships were scheduled to arrive Monday.


     The sheer volume of goods simply sitting made some people edgy, understandably enough. For example, trade groups led by the National Retail Federation sent letters to U.S. President Barack Obama and leading members of Congress asking them to intervene and help end the strike, a Reuters article reported. Barbara Boxer and Diane Feinstein, California’s two Democratic senators, also urged both sides to resolve the dispute.


     Something obviously worked. An Associated Press story, which I saw in the Boston Globe, reported that negotiators reached an agreement late Tuesday to end the eight-day strike. The deal to end the strike was announced by Mayor Antonio Villaraigosa, who emerged from the talks just a few hours after he had escorted in the federal mediators who had just arrived from Washington.


     What’s interesting is that days of negotiations that included all-night bargaining sessions quickly went from a standstill, which happens, to big leaps of progress by Tuesday. Villaraigosa said the sides were already prepared to take a vote when the mediators arrived. The federal mediators even said they had little to do with the solution.


     Now, it’s good for all involved that the strike has ended. However, the issue of striking longshoresmen isn’t necessarily out of mind. Groups are now warily watching an ongoing labor dispute between the International Longshoremen’s Association and the U.S. Maritime Alliance, which could effect ports from Maine to Texas. The employment contract between the two groups expired at the end of September without a new agreement. The contract was temporarily extended for 90 days, until the end of this year, so a strike wouldn’t have an impact on the holiday sales season. A federal mediator has stepped in to oversee negotiations to try to avert a strike that would hit at least 14 ports along the East and Gulf coasts.


     What I’d like to know, however, is whether or not your company was effected. Did your supply chain suffer any delays?