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2013

     There is no shortage of supply chain concerns for those in the pharmaceutical industry, so I was interested to see the results of a recent survey which asked respondents to rank those challenges. Regulatory compliance, product security and cost management are the top three supply chain concerns globally, according to the findings of UPS’s annual “Pain in the (Supply) Chain” survey of global healthcare logistics executives. For the first time, however, product security surpassed cost management and became the second most-pressing issue, which goes to show just how rampant the proliferation of counterfeit medicines within the supply chain has become.

 

     Fortunately though, efforts are underway on at least two fronts to help address the challenge of maintaining product security. First, when the U.S. Senate and House of Representatives were deliberating on pharma track-and-trace last spring and summer, it was widely believed that the bill would be a priority action when Congress reconvened after Labor Day. That didn’t happen. Recognizing this, two groups—the Pharmaceutical Distribution Security Alliance (PDSA) and Pew Charitable Trusts (which has an internal group called the Prescription Project)—sent a joint letter to the leaders of the relevant House and Senate committees, pushing for actionreports an article on Pharmaceutical Commerce.

 

     According to Washington sources, House and Senate committee staffs have been working on the two versions of the pharma supply-chain bill, the article notes. The most significant difference between the two is that the House bill (which passed the entire House) doesn’t include provisions covering compounding pharmacies, while the Senate version (which passed through a committee) does. Another key difference is that the House bill puts a “ceiling” on what states can require for pharma distribution security, while the Senate version doesn’t—which potentially allows California’s more restrictive track-and-trace system to go into effect. The House bill doesn’t actually require U.S. Food and Drug Administration to establish track-and-trace rules, but as the article explains, it’s hard to imagine all this effort winding up as merely a request for FDA to consider.

 

     Secondly, after considerable delay, an FDA pilot program aimed at easing the importation of active substances and finished medicines in the U.S. has gotten underway. The two-year Secure Supply Chain Pilot Program (SSCPP) is designed to allow the FDA to focus surveillance efforts on high-risk shipments that are most likely to be adulterated or counterfeited, while cutting red tape and delays for low-risk imports, according to an article on Securing Industry.

 

     The initiative recognizes that up to 40 percent of the drugs Americans take are manufactured outside U.S. borders, while up to 80 percent of the active pharmaceutical ingredients (APIs) in those drugs come from foreign sources. The reality is that the FDA will never have the capacity to screen all imported shipments.

 

     There are several aspects of the pilot that are interesting, including that it includes a qualification component that will allow 100 pre-approved applicants to have up to five of their products cleared for expedited import review. Companies who apply to take part must be the sponsor holding the approval for the imported API or finished drug—or the designated overseas manufacturer—and must have shown to be compliant with Good Manufacturing Practice. Applicants will also demonstrate a commitment to securing their drug supply chains as participants in the Customs-Trade Partnership Against Terrorism (C-TPAT), according to the FDA, which has started accepting applications, Securing Industry reports.

 

     Whether the bills actually ever get to the floor of Congress is anyone’s guess, as is what would happen once discussion started. Secondly, it seems to this observer that what FDA really needs is more “teeth” to go after those responsible for counterfeit drugs. Nevertheless, more surveillance is of course also needed and perhaps this new initiative will provide those much-needed capabilities.

 

     What do you think? What’s really needed to minimize the flow of counterfeit or adulterated pharmaceuticals?

     Violence in Syria may dominate the news lately—and for good reason—but the continued violence in Egypt is cause for growing concern about the safety of the Suez Canal. This is particularly true after an attack by assailants on a Chinese container ship in the Suez Canal earlier this month that was called “terrorist activity.”

 

     But the Suez Canal isn’t the only shipping route from Asia to Europe. An article on The Guardian last month reported that a 19,000-ton cargo vessel, operated by China’s state-owned Cosco Group, had begun a trip from Dalian, a port in north-eastern China, to Rotterdam. What was most interesting is its route: the fabled Northeast Passage through the Arctic Ocean to the European Union.

 

     The problem is the thick ice pack, violent storms and plummeting temperatures in the Arctic Ocean. However, as The Guardian article reports, global warming has transformed the Arctic in recent years and its summer ice cover has dropped by more than 40 percent over the last few decades. This raises the prospect that it may eventually be possible to sail along the Arctic’s sea routes easily—a notion that is proving irresistible to shipping lines, not to mention mining companies as well as oil and gas exploration firms, the article notes.

 

     “We always knew global warming would affect the planet first in the Arctic, but we have been floored by the rapidity of that change,” Mark Serreze, director of the U.S. National Snow and Ice Data Centre, says in the article. “Temperatures have risen dramatically. At this rate, I would expect the Arctic to be completely free of ice in summer by around 2030. That’s why everyone has become so interested in the region.”

 

     The attraction for China in opening up the Northern Sea Route is straightforward. According to Cosco, the Yong Sheng’s 3,380-mile journey was projected to take about 35 days, cutting two weeks off the traditional route between Asia and Europe via the Suez Canal, which not only saves time but significantly reduces fuel cost as well. By the way, the ship did dock in Rotterdam on September 10. As an additional benefit, this polar route also enables ships to avoid the increasingly pirate-infested waters of the Indian Ocean and the Red Sea.

 

     One significant obstacle to the new route is that there is still an abundance of ice, and consequently, ships must be accompanied by a nuclear-powered Russian ice breaker. Nonetheless, a recent BusinessWeek article reports that Russian authorities have said they already granted permission for more than 370 ships to sail the route this year. In 2012, only 46 ships sailed the entire length of the passage from Europe to Asia, while in 2010 only four vessels made the voyage.

 

     “The Russians have been serious about this for a decade and are now ready for traffic,” transport strategist John Higginbotham, head of Arctic research at the Centre for International Governance Innovation, says in the BusinessWeek article. “China for one is serious about the possibilities, and if you took Suez Canal out of the equation the take-up would be dramatic.”

 

     Higginbotham says that even though the Suez Canal delivers $5 billion a year to Egypt in “hard currency,” which makes its protection a high government priority, the scope for attacks is varied given the level of technology available to terrorists.

 

     “If I were in the business I’d get out my pencil and paper and look at the maps and routes and make plans that would minimize disruption and costs and keep trade going,” Higginbotham says.

 

     If the polar ice caps do continue melting as projected, it’s still decades until transport through the Arctic Ocean is routinely possible without an icebreaking escort. Nevertheless, it’s possible now. In the meantime, the number of pirate attacks off Somalia and in the Malacca Strait continues to grow, as does the possibility of terrorist activity in the Suez Canal. With that in mind, it would certainly seem to indicate it’s worthwhile to at least investigate using a shipping passage through the Arctic Circle.

     Do you worry about supply chain disruptions caused by natural disasters? I ask because while the season remains relatively calm, the National Oceanic and Atmospheric Administration (NOAA) does predict the Atlantic hurricane season to be above normal with the possibility that it could be very active. Besides, frankly, a weather-related disaster can happen anywhere in the world at any time, and since supply chains are global, there may be a far reaching impact.

 

     Actually, insurance giant Swiss Re believes worsening natural disasters are on the horizon. In a new report called Mind the Risk: Insight into the Exposure of Urban Centers to Natural Catastrophes,” the company assesses 616 urban areas around the world for their risk of calamitous damage from five “perils”: earthquake, storm, storm surge, tsunami and river flood. Asian cities are the most at risk, and the situation looks especially dire for Tokyo. Some 29 million people in the Tokyo-Yokohama region, for example, could be affected by a major earthquake. Considering all perils, the Tokyo metropolis is the world’s most exposed urban area, followed by Manila and the Pearl River Delta in China, the report notes. I was interested to see that outside Asia, Los Angeles is the most at-risk city, ranked ninth globally in Swiss Re’s table.

 

     The problem, of course, is that most companies now rely heavily on facilities around the world to supply products, and any disruption in supply or distribution chains may cause significant interruption and loss to a business. This is particularly true with just-in-time supply systems, where an interruption poses the potential for significant loss. For example, even if a facility is able to keep running as scheduled, if it cannot acquire the materials or products it needs from suppliers, the result may be a partial or even complete production shutdown.

 

     That’s why companies increasingly rely on contingent business interruption insurance, which protects a company from business interruption losses when a logistics system fails due to a covered cause of loss. Fortunately, a company may be protected from such losses even if the company itself has not suffered any damage to its own property because there has been a disruption in its supply or distribution chain. 

 

     Now for the bad news. As a result of steadily increasing claims, business continuity insurance and other types of specific risk insurance have been undergoing closer scrutiny by insurers when supply chain contracts are drawn up. To offset this, companies need to take steps to demonstrate supply chain resilience, writes Richard Gane, supply chain specialist at Vendigital market experts and advisers, on SupplyChainDigital.

 

     What does that mean to companies? For starters, when supply contracts are being prepared and insurance cover is being sought, it may be necessary to provide insurers with detailed information to demonstrate that the supply chain risks are fully understood and contingency management systems are in place, Gane writes. It may also be appropriate to alter the footprint of the business or even re-source a particular contract—if only to ensure optimum supply chain visibility, which can help to alleviate such risks and ensure that contingency management systems are triggered as quickly as possible. These changes could significantly enhance the risk profile of the business from a supply chain perspective, Gane believes.

 

     The key in all this is to take a hard look at the supply chain—and all participants. In particular, companies should conduct a full risk assessment of suppliers, including their business continuity plans and geopolitical exposures. That also means checking the supplier’s critical relationships, as well as reviewing adequacy of insurance coverage on suppliers to ensure all risks of disruption are covered.

 

     September is National Preparedness month. Is your supply chain prepared?

     Purchasing pharmaceuticals via the Internet can be extremely risky. For example, according to World Health Organization (WHO) estimates, more than half of the medicines purchased via the Internet from illegal sites that conceal their physical address have been found to be counterfeit. What makes the situation more troubling is that it’s very challenging for consumers to identify illegal sites.

 

     Counterfeit medicines, which may be virtually indistinguishable from legitimate medicinal products, can be life-threatening. They may contain the wrong active ingredient as well as too little, too much or even no active ingredient at all. Furthermore, adding even more risk, forgeries are commonly produced under unhygienic conditions in backstreet workshops and garages, and frequently contain unsafe or toxic substances.

 

     Just how widespread is the problem? This year’s global control operation, called PANGEA, gives an indication of the scale of the traffic in illicit medicines. In a concerted campaign coordinated by Interpol last June across 100 countries, police and customs officials systematically scrutinized international traffic for counterfeit medicines. Interpol reports the initiative resulted in the seizure of 9.8 million potentially dangerous medicines worth some U.S. $41 million. More than 9,000 websites linked to illicit online pharmacies were identified and shut down, in addition to the suspension of payment facilities of illegitimate pharmacies and the disruption of a substantial number of spam messages.

 

     With that history in mind, I was interested to read how the German Customs Investigation Bureau, Interpol, pharmaceutical manufacturers and pharmacists presented details of their alliance to expose forgers and provide better protection for consumers at the 2nd Counterfeit Medicine Information Forum held in Berlin last week. Stressing the need for consumer safety, Richard Bergström, general director of the European Federation of Pharmaceutical Industries and Associations (EFPIA), said the federation must ensure that patients in Europe receive their medicines from safe sources on a sustained basis. To do that, the group needs cross-border systems and processes that effectively eliminate forgeries from the pharmaceutical supply chain and track down criminal forgers, he said.

 

     Some groups are currently working toward that goal. In Germany, for example, medication manufacturers, wholesalers and pharmacies already have begun an initiative to protect the sale of medications against counterfeit medications. A group of German manufacturer associations commissioned arvato Systems to develop, implement and host an IT solution to protect against counterfeit medications. The resulting system, called securPharm system, was launched as a pilot project last January.

 

     arvato Systems explains that any medicines which may have been falsified must be furnished with a security feature that can be used to check the authenticity of the medication at any time—along the entire supply chain from when it leaves the production facility up through when the medicine is dispensed to the end user. To do that,each medication pack is printed with a unique two-dimensional data matrix code, which may be used to verify authenticity at every point along the legal supply chain. According to the end-to-end approach, verification must be carried out in a pharmacy before the medication is dispensed. So far, more than 280 pharmacies and 24 pharmaceutical companies are involved, and approximately four million medication packages have been labeled.

 

     The plan is for securePharm to ultimately be used to track pharmaceuticals across the EU, which is problematic considering the sheer scope of the geography as well as the number of country borders. What’s interesting, however, is if the system would work in Africa, for example, which is not only bigger geographically but is even more plagued by a rise in counterfeit medicines.

     Much has been written about a perceived manufacturing talent shortage, but what I find interesting is a resurgence in companies conducting their own training. Furthermore, in some cases, they are even building their own training centers—or are working with local community colleges to build the centers.

 

     For example, German-based Benteler Steel/Tube has announced plans to establish a two-phase, 1.35 million sq.-ft. steel tube facility at the Port of Caddo-Bossier, LA. The move increases efficiency for the company, which was already exporting about 25 percent of its steel tube production to the U.S.

 

     Writing in the Shreveport Times, Scott Martinez, president of the North Louisiana Economic Partnership, explains that state and local governments agreed to fund a $22 million workforce training center, now under construction, at Bossier Parish Community College in Bossier City—across the river from Shreveport. The 65,000 square foot BPCC Center for Advanced Manufacturing and Engineering Technology will feature training labs that mimic the future Benteler facility, as well as other labs and classrooms meant to help the college expand its advanced manufacturing, construction and energy curricula. Benteler’s 675-person workforce will receive both initial training and continuing education at the new center.

 

     The news reminds me of a story about how Hypertherm, a manufacturer of advanced cutting products, created its own training program. Working with Vermont HITEC, a nonprofit organization in Vermont that had successfully run training programs, the company opened its Hypertherm Technical Training Institute. The immersion-styled education program teaches people who have a good attitude and an aptitude to learn to be skilled machinists in just nine weeks.

 

     The program was further improved in 2009 when Hypertherm formed a partnership with the New Hampshire community college system that enabled students who successfully completed the training program to earn college credit toward an Associate’s degree and a certificate in Machine Tool Technology. Since then, Hypertherm has also opened its training institute to other employers to improve the competency of CNC machine operators regionally.

 

     As baby boomers continue to retire, companies need to recruit younger workers to take their places. In addition to simply recruiting younger workers though, recruiting more women and military veterans would help round-out a labor pool. Women, for instance, represent nearly half of the total U.S. labor force and earn more than half of the associate’s, bachelor’s, and master’s degrees in the U.S. Veterans are often used to advanced technical training and possess leadership experience and valuable critical thinking skills.

 

     I was also interested to run across some novel ideas for recruitment as well as retention. As a recent article on IndustryWeek noted, it’s important to not only get skilled workers in the door, but keep them there. That means investing in education, training and retention efforts has become fundamental and necessary in today’s business climate.

 

     The ideas listed in that article include seeking out local and regional job fairs, including college-specific job fairs, to pull in talent; work with local high schools to establish relationships and broaden exposure to the manufacturing industry; cultivate and leverage internal talent so employees help with recruitment; use social media websites for recruitment; use recruitment resources to hire veterans; and establish relationships with local tech and trade schools, as well as universities, to help garner interest in potential candidates for employment.

 

     I think those are all good ideas. It seems to me there is plenty of potential labor, the issue is to recruit, train and retain them. Training and education are key areas but partnering with local schools and building a training center could help significantly.

 

     What are your thoughts on recruiting and training new employees?

     Product recalls, it seems, are always in the news. While they do represent a—hopefully, only temporary—loss of revenue, they don’t necessarily lead to a loss of market share or a black eye for public relations.

 

     Whenever I read about a product recall, I’m reminded of a study conducted in 2010 by Relational Capital Group. The firm’s survey asked respondents a series of questions regarding their beliefs about the handling of recalls, as well as their purchase intent and loyalty for each recalled brand relative to its key competitors. What was most interesting to me, is that 91 percent of the survey participants agreed that “despite modern technology and honorable intentions, even the best-run companies and brands can make mistakes that lead to product recalls.”

 

     What’s even more noteworthy is that 87 percent of the respondents agreed that they are more willing to purchase from, and remain loyal to, a company that handles its product recall in an honest and responsible way. In other words, it pays to treat customers right, even when things are going wrong.

 

     Then again, recalls also offer an opportunity for a company’s competitors. For instance, you may be following the story about the Greek yogurt business in general, and Chobani, in particular. It turns out, the company has recalled an unidentified amount of its popular product. The formal recall relates to yogurt with “best by” dates between Sept. 11 and Oct. 7, and comes about a week after Chobani encouraged retailers to pull its yogurt off shelves because some containers were showing “swelling and bloating,” an article in Businessweek reports. Chobani, it should be noted, said in an on-line statement that the affected yogurt came from its Idaho plant and represents only about five percent of Chobani product on the market.

 

     Here’s where an opportunity arises whenever there is a product recall. Leveraging social media, yogurt maker Yoplait tweeted that this is the perfect time to try its offering, Yoplait Greek. Then later the same day, the company tweeted that Greek yogurt isn’t hard to find, and that consumers should try its Greek yogurt.

 

     Seizing its own public relations opportunity, Chobani has explained what happened, how the company responded, and even apologized. Indeed, the company’s website now has a letter from its founder to its customers. In that letter, founder and CEO Hamdi Ulukaya writes that there is nothing the company takes greater pride in than making a perfect cup of yogurt. He continues to write that the company recently identified mold in a limited amount of product that came from its Idaho facility, and while this type of mold is common in the dairy environment—particularly when using only natural ingredients that are absent of artificial preservatives—it’s still unacceptable to him and all of the company’s yogurt makers.

 

     He then goes on to note that the company proactively withdrew product from store shelves and he decided to voluntarily recall the limited amount of remaining product to be extra careful and cautious. Ulukaya then concludes by offering “My heartfelt apologies to our friends, fans and consumers who were impacted, as your loyalty and safety is something we cherish and never take for granted.”

 

     It remains to be seen what type of impact the product recall will have on Chobani, or for that matter, whether Yoplait is able to gain market share. However, given that consumers remain loyal to companies they believe acted honestly and openly, it would seem this is only a bump in the road for Chobani. In fact, its customers may become even more loyal if they believe the company is honest and clearly demonstrates responsibility.

 

     What do you think? Recalls obviously offer an opportunity for some competitors to lure customers away. But do you believe the manner in which a company handles a product recall also offers it an opportunity to improve loyalty among its customer base?

     As China's government continues its crackdown and levels corruption accusations against foreign pharmaceutical companies, drugmakers watch with a wary eye, and some business lobbyists begin to object.

 

     The situation began earlier this summer when China began investigating GlaxoSmithKline Plc for suspected economic crimes. China accused the British pharmaceutical company of behaving like a “criminal godfather”—using a network of more than 700 middlemen and travel agencies to bribe doctors and lawyers with cash and even sexual favors in return for prescribing its drugs. At the time, Chinese police had detained four senior Chinese executives as part of an investigation involving deals worth 3bn yuan ($489m).

 

     Chinese police now claim to have found evidence showing GlaxoSmithKline organized a bribery program targeted at major hospitals at a company level in China, reports The Guardian. The article explains that, according to a state media report, Chinese investigators say the findings dismiss suggestions that abuses may have been the result of overenthusiastic or rogue sales staff.

 

     An increasing number of individuals reputedly involved in corrupt payments are said to have made confessions, according to the Xinhua news agency. The agency writes, “As the investigation is moving on, it is becoming clear that it is organized by GSK China rather than drug salespeople’s individual behavior,” The Guardian reports.

 

     To be fair, GlaxoSmithKline isn’t the only drugmaker under investigation for corruption in China, driven by a government initiative as well as by whistleblowers coming forward. So, for instance, a woman who sold a cancer drug in China for Novartis AG said she was asked to give doctors kickbacks in return for sales of the medicine. Sanofi is also under investigation after a salesperson admitted to paying bribes to doctors.

 

     This is all too much for a European Union business lobby, which says foreign pharmaceutical firms in China have been unfairly targeted by a string of investigations into bribery and price-fixing despite generally strong legal compliance. Consequently, foreign firms are understandably skittish as they cope with what may now be the largest risk for pharmaceutical companies doing business in China.

 

     Bruno Gensburger, the chair of the European Union Chamber of Commerce in China’s pharmaceutical working group, said the foreign companies that have been investigated all have global standard operating procedures and are “at large” very responsible in their China practices, reports a Reuters article.

 

     “What I feel is a little bit unfair is that the foreign companies which are most serious about SOPs have been the most investigated and the most discriminated. To my knowledge today, no Chinese company has been investigated,” Gensburger told reporters at a briefing on the Chamber’s annual position paper, Reuters reports. “The question we ask today is if this campaign is aimed just to frighten some companies or create a special climate?”

 

     The Chamber’s president, Davide Cucino, said European companies would be satisfied if the cases are handled according to law and if there is a balanced focus on corruption within domestic firms in the Chinese press. Cucino added that the lobby is worried about how China’s antitrust regulators are using a 2008 anti-monopoly law, which some fear has been directed at multinationals, Reuters reports.

 

     In its paper, the Chamber writes that the Chinese government is making on-going efforts to prop up state-owned enterprises at the expense of foreign companies. Beijing’s view on market access is “fundamentally anachronistic,” the Chamber’s paper states, noting that China need not protect its companies because it has demonstrated that they can compete with multinationals in all sectors.

 

     At this point, one must wonder—along with the EU Chamber of Commerce’s pharmaceutical group—whether or not foreign companies are being unfairly targeted by the Chinese government. Regardless of that answer, the more pressing concern for these companies is how to conduct business in the meantime as well as moving forward, especially under increasing scrutiny by the government.

     The vulnerability of many organizations’ global supply chains was clearly evident in the aftermath of two major disasters in 2011. First there was the earthquake and subsequent tsunami in Japan followed later that year by the flooding in Thailand, both of which caused some organizations to examine such strategies as sole sourcing and eliminating surplus inventory.

 

     In Japan, the electronics supply chain felt a considerable impact because the country is a major global supplier of chips, flat-panel displays and other components used in devices like computers, tablets, digital cameras, Blu-ray players and televisions. Japan also is a major exporter of consumer electronics, and that exporting ground to a halt. At the same time, there were numerous setbacks for the auto industry, not only because Japanese automakers were forced to halt vehicle production, but also because Japanese suppliers produce many of the electronics and other components used in today’s vehicles—and again, they were forced to stop production.

 

     Later that year, Thailand experienced the worst flooding the country has seen in more than 50 years. The problem is that Thailand has become a major production and export hub for global auto makers, and the flooding damaged several key industrial areas that are home to a large number of international auto component suppliers as well as other export-oriented factories.

 

     Thailand is also home to a number of electronics factories, and in fact, is the No. 2 maker of hard drives used in laptops, servers and TV set-top boxes. Damage caused by flooding caused some short-term shortages of hard drives used by computer manufacturers and companies in the high-tech market.

 

     Clearly, there are disadvantages to clustering manufacturing and other operations in certain geographic areas. There also, however, are definite advantages. So as an article on Supply Chain Digital points out, businesses located together in business or industry clusters do demonstrate seemingly better results, chiefly through increased productivity via shared technology and knowledge, easy access to employees, training programs and research and academic institutions. There also is a competitive advantage that stems from being near customers and suppliers. Finally, increased innovation with direct customer relationships may enable businesses to recognize new innovation opportunities and share resources, intellectual property and information.

 

     That’s why, for example, Singapore is home to an electronics industry comprised of large and small original equipment manufacturers, and suppliers who manufacture a range of products, subassemblies, components and parts for both the industrial and consumer markets. Modern high-tech clusters also often group around high profile universities to leverage research, which is why Silicon Valley is near Stanford University, and similar high-tech clusters gather around MIT in Boston, the article explains.

 

     What I find intriguing however, is that aside from natural disasters, there are other disadvantages to industry clusters. The Supply Chain Digital article does point out, for instance, that these clusters also drive up wages, and they can also consequently lead to an increase in other costs of doing business—such as real estate and property prices and rents.

 

     The author does make the point that it’s possible in developing markets to gain temporary advantage from clustering in obvious bridgehead locations located close to logistics hubs, which enables relatively fast shipping “up-country.” On the other hand, technical skills are relatively stable and can be either recruited anywhere or can be relocated without much difficulty, the article states.

 

     What are your thoughts on clustering? If it’s not used to develop a continuous stream of innovative products, do the economic benefits quickly erode? What about in developing markets: Do short-term advantages outweigh possible long-term costs?