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2013

     The end of a year is always a good time to think about what trends took place, or continued to take place, over the past year. In looking back at 2013, one trend that stands out for me, is the continued discussion about reshoring as companies increasingly reshore or nearshore operations.

 

     For instance, it was noted that an increasingly productive U.S. factory sector, leveraging cheaper energy and relatively lower wages, is expected to pull production from leading European countries, Japan and China. Within six years, that production will capture $70 billion to $115 billion in annual exports that would have come from those countries. Furthermore, together with “reshored” manufacturing from China, where rising wages are undermining its competitiveness, the manufacturing shift could add from 2.5 million to 5 million jobs in the country, according to research from the Boston Consulting Group.

 

     What I also found surprising is that given a choice between a product made in the U.S. and an identical product made abroad, 78 percent of surveyed Americans would rather buy the American-made product. Those people are interested in retaining manufacturing jobs and keeping American manufacturing strong in the global economy. They also have concerns about the use of child workers or other cheap labor overseas, and believe American-made goods are of higher quality, according to Consumer Reports.

 

     Those consumers will pay more for American-made goods as well. More than 60 percent of all respondents in the Consumer Reports survey indicated they’d buy American-made clothes and appliances even if those cost 10 percent more than imported versions. Furthermore, more than 25 percent of the respondents said they’d pay at least an extra 20 percent to purchase American-made products.

 

     With all that in mind, I was interested to see a recent manufacturing.net article which explained that electronics manufacturers are increasingly interested in reshoring operations because China is becoming a far less attractive manufacturing option. Indeed, Wilson Lee, director of product manufacturing for Newark element14, notes in the article that, the “new normal” of manufacturing for OEMs in the electronic components industry has been to balance offshoring with reshoring. The case is even stronger for new product initiatives (NPIs) or technologies in which total acquisition costs can be significantly reduced.

 

     “In my opinion, the complexity of new technologies is minimized if there is a business-to-business understanding of the total cost of acquisition,” Lee says in the article. “In terms of electronic components, off-shoring presents more opportunities for miscommunication and misinterpretation. Furthermore, valuable time is eaten up as products are shipped to and from various regions of the world.”

 

     In the end though, the decision to move operations—whether reshoring or nearshoring—is complicated and there are a great number of factors to consider. Of course, it always helps when states will offer tax and other economic incentives. While those incentives and the overall cost of labor are important, other factors should be equally considered and weighed accordingly.

 

     Writing recently in Supply Chain Management Review, Rosemary Coates, president of Blue Silk Consulting, listed some key variables that should be considered in determining the costs and feasibility of reshoring some production from China. Chief among the noted variables are:

 

  • Innovation—What product innovation is needed for the U.S. market?
  • Automation—Would you be able to use automation to reduce labor costs through use of new technologies such as 3D printing and robots?
  • Localization—Could basic products be manufactured in China and then have final assembly for the U.S. market accomplished here?
  • Supply base—Is your supply base all located in China? If so, what work needs to be done to reestablish your supply base in the U.S.?
  • Incentives—What tax and other incentives are being offered by local, state and federal governments?
  • Skills—What skills will be needed for U.S. production and where will you get those skilled workers?

 

     I’m interested in what you think. What other factors should be thoroughly evaluated when considering reshoring or nearshoring? Also, do you expect reshoring, or nearshoring, to gain additional traction next year? What other trends do you expect to see next year?

 

     Happy New Year.

     One of the things that’s interesting about the supply chain is that it’s basically everywhere. That includes the production, warehousing and distribution of liquor, and now, pot. Well, rock and roll music too, if you consider the sale and distribution of CDs. But that’s another post.

 

     In all seriousness, liquor distribution is nothing new—and is big business. I was interested to recently see a different angle on how liquor moves through the supply chain. A recent SupplyChainBrain article explains that, to reduce working capital tied up in the many SKUs of wine and liquor held in inventory before distribution to its state-owned stores, the Pennsylvania Liquor Control Board (PLCB) implemented a customized vendor-managed inventory system.

 

     An independent government agency, PLCB is responsible for wholesale and retail sales and distribution of wine and spirits in the Commonwealth of Pennsylvania. With annual sales of nearly $2bn, it claims to be the second-largest distributor of wines and spirits in the world because it operates more than 600 retail and wholesale stores, plus online consumer and wholesale sales channels, through which it offers an assortment of more than 30,000 SKUs to its customers, the article explains. These products are obtained from a complex network of more than 100 suppliers across five continents.

 

     PLCB’s customized solution, worked out with partner Deloitte Consulting, brought 28 vendors into a single web-based portal that supports collaborative planning based on shared forecasts and historic sales information. In addition, the solution was customized to enable a hybrid inventory management model that allowed the PLCB to store vendor-owned merchandise and PLCB-owned stock in the same physical warehouse location without changing the existing warehouse management system, the article explains.

 

     In the past, PLCB held between $120m and $200m in warehouse inventory, dependent on time of year. Since the new system enables collaborative planning, forecasting and replenishment within integrated enterprise architecture of closely interfaced Oracle applications and Robocom’s warehouse management system, PLCB was able to reduce working capital by approximately $100m in fiscal year 2012, says John Metzger, PLCB director of supply chain, in the article.

 

     Given the amount of growing media coverage, you may already know that hundreds of recreational marijuana shops are scheduled to open in Colorado tomorrow. To govern the new industry, Colorado’s Department of Revenue has issued medical marijuana regulations requiring that the pot plants and products status and whereabouts be recorded as they move throughout the supply chain. The agency also indicated that the state will eventually require the use of EPC Gen 2 ultrahigh-frequency (UHF) RFID tags to authenticate and identify each product or plant, an article on RFID Journal reports. Consequently, the state created what it calls a Marijuana Inventory Tracking Solutions (MITS), which the Department of Revenue’s Marijuana Enforcement Division intends to use to track the pot from the greenhouse in which it is grown to the store where the drug is sold.

 

     The MITS software, residing on Colorado’s database, will track each plant or package—beginning with the moment a marijuana cutting is first planted. Key to the system will be the use of EPC Gen 2 UHF RFID tags supplied by Franwell, the article explains. Marijuana growers must purchase these tags—available in various forms, including as a hangtag or an adhesive label—and attach them to the plants themselves, or to packages of processed marijuana.

 

     The MITS solution is designed to help the state maintain control over an industry that has been historically clandestine and illegal, explains Julie Postlethwait, the Marijuana Enforcement Division’s public information officer, in the RFID Journal article. It will help the state focus on ensuring that a pot plant, once it begins growing, does not end up anywhere other than at a state-authorized retailer. In addition, the agency will be sure that what’s being sold in the stores comes from an authorized grower, Postlethwait says.

 

     So, in all seriousness, I think use of a solution that enables the State of Colorado to track marijuana as it moves throughout the supply chain—from grower to buyer—is a good idea. I’ll be interested to watch this story as it plays out.

     One of my favorite books—and movies, too—is “A Christmas Carol,” Charles Dickens’ tale of Ebenezer Scrooge and redemption.

 

     As you likely recall, Scrooge was visited by four spirits on Christmas Eve. The first being that of his former business partner, Jacob Marley, who had died seven years ago on that very night. But it’s the other three spirits—the Ghost of Christmas Past, the Ghost of Christmas Present, and the Ghost of Christmas Yet to Come—that generally get most attention.

 

     All of us can learn from Scrooge’s night, and can take stock—both professionally and personally—of what has been done, what is being done, and what will be done. These lessons can apply to most any supply chain discipline. So, for example, spend analysis can play the role of the Ghosts of Christmas Past and Present because purchasing executives can examine and scrutinize their own and their supplier’s past and present performance, contracts, commitments and risks so they in turn can make better decisions in the future, wrote Paul Martyn, a vice president at BravoSolution, on Supply & Demand Chain Executive.

 

     The place to start, just as it was for Scrooge, is by reviewing the past. Using spend and supplier analytics, purchasing executives are able to examine past purchasing performance. That enables them to determine what went poorly, what was acceptable and—hopefully—what went well.

 

     Purchasing executives also need accurate, up-to-date information to support advanced analysis. This way, they can see the reality of today’s transactions and commitments through numbers. That will allow them to determine, for instance, whether it’s best to continue tackling one crisis at a time or whether they should move to take corrective action. Admittedly, there can be some tough decisions to make, but, as Martyn notes, if executives have the facts and complete a thorough analysis, they will ultimately be more comfortable with the decisions they make.

 

     That leads us to future spending, or, for Scrooge, that which is Yet to Come. Spend analysis and sourcing provide a new “what-if” course of purchasing. Armed with the findings of the analysis of past performance—both their own and that of their suppliers—purchasing executives now have some decisions to make. That is, they have an opportunity to learn from the past and take a new, improved course for future decisions.

 

     During the supplier-selection process, for instance, innovative companies look beyond a vendor’s current capabilities, thinking about future capabilities and the anticipated cost to bring that capacity online, says Martyn. Using advanced optimization techniques, buying teams can quickly analyze the costs and benefits of making such an investment in a key supplier. Martyn then asserts that by making a strong commitment to developing lasting collaborative relationships with the most strategic vendors, organizations can create the visibility and control necessary to be certain the necessary steps have been taken to reduce risk.

 

     What do you think? Let me know how important you think it is to base key decisions by reviewing past actions and events. If you’d rather talk about Tiny Tim or a turkey as big as a young boy, that’s fine with me too.

 

     Happy Holidays, everyone.

     Counterfeiting, it sometimes seems, is rampant across many industries—although it certainly is more prevalent in some industries than others. The question then becomes: What can be done to at least slow it’s growth?

 

     In some respects, the explosive growth in counterfeiting is mainly attributed to the digital era because the Internet makes counterfeiting a low-risk market since it offers counterfeiters a nearly unlimited global market, low-cost communications and potential anonymity, an article on Securing Industry explains. Furthermore, the general practice of information sharing among business partners allows counterfeiters to readily access proprietary information and ultimately capitalize on the demand for high-end brands.

 

     I found the article interesting because it lists some steps the authors—Neil Alpert, chief executive, and Ron Guido, chief marketing officer, for LaserLock Technologies—believe will help manufacturers act against the continued rise of counterfeit products. As with any sound strategy, the first step is to assess vulnerabilities. As a whole, the manufacturing industry’s efforts to protect intellectual property have been largely ineffective, the authors write. Even the most highly regarded global organizations have widely shared their standard operating procedures with external parties, trained them on quality manufacturing and even transferred tooling and printing plates.

 

     To truly mitigate the risks of counterfeiting, manufacturers must objectively assess the effectiveness of their existing efforts by considering key factors such as whether the company conducts due diligence in regard to contractor and employee background checks, as well as facility security, inventory accountability and destruction of unsalable materials, the authors write. Companies should also consider whether they regularly audit every external facility that participates in its supply chain, and whether it ensures all retired tangible assets are properly destroyed and inaccessible to counterfeiters. Another key factor to consider is if existing processes, procedures and knowledge enable the company to trust with verification.

 

     After taking stock of the company’s vulnerabilities, there are several steps executives can take to help prevent counterfeiting of their brand. For instance, they should, the authors believe, partner with a technology expert and install and integrate authentication solutions into existing SOPs. There are also many best practices for protection that should be adopted, and a few include:

 

  • Implement mandatory anti-counterfeiting awareness training for all employees and contractors,
  • Monitor supply and demand trends across trade channels for aberrations that may indicate the presence of fake goods,
  • Respond aggressively to all incidents of fake goods,
  • Revise third-party agreements to ensure that any transactions outside the authorized network are explicitly forbidden, and
  • Authenticate returned goods before restocking and trace suspicious goods back to their sources.

 

     Companies can also implement anti-counterfeit technology. As with any significant investment, it’s important to first determine which solution is the best fit by evaluating the supply chain’s projected risk based on three components: the brand profile, active trade channels and target markets, the article’s authors write. Anti-counterfeit technologies, particularly those capable of full operational integration and downstream authentication, fall into three categories: sensory authentication, digital authentication, track & trace systems.

 

     In the end though, I agree with the authors in that no single company, technology, practice or program will completely mitigate the risks of counterfeit goods. The most viable solution for manufacturing relies on widespread cooperation that extends beyond the supply chain—and even manufacturing itself. Instead, efforts will need to be embraced and adopted by legislators and regulators, manufacturers, distributors, retailers and even—and perhaps most importantly—educated consumers.

 

     What are your thoughts on counterfeiting? How much of a risk is it for your company? Secondly, what do you think can really be done about it?

     Evolving events at Boeing continue to cast a spotlight on the division between management and the labor union—and within the machinists union itself. As a Reuters article notes, a recent labor rally and counter-protest further illustrates the rift that divides the union over the contract, which pits job security against a company pension. Consequently, thousands of jobs at the factory, which produces all of Boeing’s commercial jets except the 737, hang in the balance.

 

     Boeing has offered to build its next jetliner, the 777X, at the factory if machinists approved an eight-year contract extension that would replace their pension plan with a 401(k)-style retirement savings account. At the same time, the company has also been courting other states that offer to host the jet program, which brings with it billions of dollars in economic activity and thousands of well-paid jobs. The International Association of Machinists members rejected the deal so Boeing—apparently—is seriously considering at least building key parts of the 777X, including the wings, in non-union U.S. states or in Japan.

 

     Indeed, Boeing said on Tuesday it’s narrowing its list of sites for building its 777X jetliner to “a handful,” signaling its determination to consider locations outside Washington state where it now builds similar planes, the Chicago Tribune reports. In a letter to employees, Boeing Commercial Airplanes Chief Executive Ray Conner said the company received proposals for 54 sites from 22 states, and the company aims to cut the list down to a few top picks this week, the Tribune reports. Those alternatives include non-union South Carolina, where the company currently assembles 787 Dreamliners and where it recently broke ground for a new factory that will make engine housings for its forthcoming 737 MAX planes.

 

     It should be noted that the union’s vote doesn’t necessarily mean the 777X ultimately will be built outside Washington, because moving the work would bring logistical headaches, analysts and industry experts say, a second Reuters article notes. Boeing already has a smooth-running factory line in Everett for the 777, its best-selling wide body jet. It could use the same workforce and large, fixed tooling to build the 777X, an updated version with essentially the same aluminum fuselage, and new wings, engines and systems, Reuters notes. Any other site would require time to set up tooling, train workers and deal with the distance between its current 777 operations and the 777X line.

 

     Washington state Gov. Inslee, who won approval of an $8.7 billion tax package for Boeing and the aerospace industry in less than a week, says the state still has much to offer Boeing.

 

     “This doesn’t diminish the strengths we bring to the table,” Inslee says. “Washington state offers tremendous workforce, tremendous incentive package, good permitting and a way to move forward on transportation. We bring those strengths to the table and we’ve got to continue to maximize them.”

 

     Be all that as it may, it’s worth noting that Boeing has already moved thousands of jobs away from Washington in recent years and has said that diversification is a long-term corporate strategy. Furthermore, it has been widely reported that Chicago-based Boeing announced yesterday that it promoted Dennis Muilenburg, head of its defense division, to the post of vice chairman, president and chief operating officer. An article, which I saw on the Chicago Tribune, notes that company insiders and analysts alike believe the move makes him “heir apparent” to Chief Executive Jim McNerney.

 

     The announcement is especially noteworthy given that Muilenburg is a vocal proponent of the “One Boeing” strategy. Essentially, One Boeing strives to better coordinate supply chain and other functions across the commercial and defense units as a means to drive cost out of its products and increase the international share of its business.

 

     With all that in mind, it certainly seems to this observer that—in the aftermath of the union’s rejection of Boeing’s proposed contract—the company intends to find another place to build 777X. That move would include obstacles, but they aren’t insurmountable.

 

     What do you think, either about Boeing’s supply chain strategy or whether or not the machinists union took the right long-term stance?

     It’s in retailers’ and manufacturers’ best interests to introduce more transparency into their product labels and identify fair trade, conflict-free and environmentally friendly practices, according to the results of a new survey. KPMG surveyed 1,000 adults, 18 years of age and older, and found that nearly 70 percent of consumers under age 30 consider social issues such as sustainability, human rights and fair trade before making a purchase.

 

     Many of these campaigns around human rights and sustainability begin on college campuses so it stands to reason that younger people are more influenced by social issues when they shop, says Jim Low, audit partner, KPMG LLP. But the firm also found that a large percentage of mature consumers are also engaged in ethical consumption, he adds.

 

     The survey found that 34 percent of consumers under 30 always or frequently consider social issues when buying everyday goods such as gasoline, toys and food. On the other hand, 41 percent of those consumers consider social issues when considering big ticket purchases such as automobiles, computers, consumer electronics and jewelry.

 

     The holidays are a peak selling season for products such as consumer electronics, autos and jewelry that are potentially sourced from or contain components with so called “conflict minerals:” tin, tantalum, tungsten (3T’s) and gold. The problem is that the minerals are mined in conditions of armed conflict and human rights abuses. What’s more, the profit from the sale of these minerals is used to finance continued fighting in eastern Congo.

 

     However, these conflict minerals are the focus of a section of the Dodd Frank Act that seeks to curb the funding of militias in the Democratic Republic of the Congo (DRC) and adjacent countries that commit human rights violations and often benefit financially from mines producing these minerals. So, as KPMG notes, under the Dodd Frank Act, companies must describe the status of their products in a new form, Form SD (specialized disclosures) as DRC conflict free, not DRC conflict free, or undeterminable (for the first two years for large filers and four years for smaller filers), KPMG explains. This information must be filed by May 31, 2014 (for the 2013 calendar year) and annually by May 31 thereafter.

 

     As for this holiday season, retailers and manufacturers likely won’t see an immediate conflict minerals impact on consumer sales. That makes sense given a general lack of knowledge about the situation. Indeed, according to the KPMG survey, only 16 percent of U.S.-based consumers have heard of the term conflict minerals, though conflict mineral awareness was 75 percent higher among consumers under 30 than the general population.

 

     Next year though, the situation will be different. Industry giants in consumer electronics and other industries are quickly moving to set up a framework to comply with this rule, and some companies stress a desire to go beyond compliance and become conflict-free by the end of 2013, says Low. What’s more, it has been noted before that some of these companies have already established conflict-free programs—proving that clean supply chains are possible, and profitable.

 

     That quick start may very well generate a competitive advantage for companies as they explain their position to socially aware consumers. Furthermore, greater supply chain transparency can help companies develop a more resilient and efficient supply chain, Low says.

 

     With all that in mind, I’d like to ask: Are you a consumer who considers social issues such as sustainability, human rights and fair trade before making purchase? Secondly, how do you think the Dodd Frank Act will effect your supply chain?

     At this time of year it’s interesting to look at trends and forecasts to see what’s been happening and what’s expected to happen. I recently saw, for instance, Deloitte’s Business Trends 2013 report, which as the firm explains, examines emerging forces that influence how organizations think about their strategy. These trends were selected based on topics that consistently re-surfaced during conversations with business leaders over the past year as well as their potential to impact strategy over the next two years.

 

     Deloitte subtitled the report, “Adapt. Evolve. Transform.” because as the firm further explains, each trend has the potential to “upend long-held assumptions, energize strategic planning efforts and even fundamentally shift the business environment for individual companies or industries.” The trends are grouped into two categories, and the first is called “Get Closer” trends that offer the potential to help organizations become more interconnected with customers, partners and other stakeholders. One trend in this group, for example, is reengineering business intelligence—in other words, making use of social media with other external and internal data sets, along with refined analytics, to help anticipate strategic risks and opportunities.

 

     What I found more interesting, however, are the “Reach Further” trends. While there are several of these trends, two in particular caught my eye. The first is building on the economies of Brazil, Russia, India and China (BRICs). These economies have commanded significant attention in recent years as they transcended emerging market status and became global players. But as their growth pace decelerates, companies now must focus attention on a new tier of emerging markets, including Indonesia, Malaysia, the Philippines, South Africa, Thailand, Turkey and Vietnam. The gross domestic product growth in these emerging markets has caught up with—and even surpassed that of—some BRIC nations, creating large numbers of middle-class consumers and spawning competitive local businesses, the report notes.

 

     There are several factors that are considered critical to achieving success in these markets. For example, participation in emerging markets can require multinationals to undergo a steeper, more experimental learning curve than is typical in more developed countries, the report explains. That learning curve is likely to be different from market to market, and may be steeper in some than others. Local companies, on the other hand, can often translate lessons learned from one emerging market to another more efficiently. This, when added to agile corporate governance structures, proximity to other emerging markets, advantageous cultural and ethnic factors, and a focus on long-term growth (rather than a capital market-driven short-term focus), may enable these companies to redeploy assets and capabilities easily and effectively, the report notes.

 

     When expanding in any market, recruiting and retaining talent becomes a necessity, so I was also interested to see a section in the report on emerging market talent strategies. Fortunately, lessons learned in BRIC countries and other emerging markets can also be applied to these new markets. Indeed, as emerging market consumers demand products and solutions tailored to their values and priorities, global companies are beginning to recognize the need to build a local workforce that can respond to more sophisticated local buyers. Meanwhile, the report explains, knowledge workers in these markets are increasingly sophisticated and recognize the value of experience gained from working in global organizations as they seek personal and professional development.

 

     What stood out for me, is a trend for global companies to modify their existing global talent frameworks to allow for local customization. That way, they’re able to deliver localized approaches that include new career paths for talent with local and global advancement opportunities, reward strategies that consider differing market values and retention strategies, a strong leadership development program, and a greater openness and respect for ideas and innovations that originate in emerging markets.

 

     Is your company entering or expanding into new markets? Also, what strategies do you think will be critical in recruiting and retaining local talent?

     Several recent examples have me thinking about state and local governments’ use of tax and other economic incentives to lure manufacturers. Sometimes it’s to foster growth of specific industries and at other times, it’s to lure a certain large company.

 

     For instance, most of the 54 companies that are participating in New Jersey’s Technology Business Tax Certificate Transfer fund are either in biotech or healthcare, including such up-and-coming companies as Amicus Therapeutics, Eagle Pharmaceuticals, Cornerstone Pharmaceuticals and Savient Pharmaceuticals, reports an article in Pharmaceutical Commerce. Interestingly, each approved applicant will receive the equivalent of $1.1 million in tax credit, up 21 percent from the previous year.

 

     New York City has its own plans. An IndustryWeek article explains that to further bolster its efforts to position New York as the “preeminent capital for life sciences innovation in the world,” the New York Economic Development Corp. has formed the City of New York Early-Stage Life Sciences Funding Initiative. The city is putting in $50 million, and will partner with Celgene, GE Ventures and Eli Lilly. By leveraging the initial capital with matching funds from venture capital partners, the co-investment partnership will deploy a minimum of $100 million and seek to launch 15 to 20 breakthrough ventures by 2020.

 

     At the same time, there a quite a few people watching economic developments in other states. Specifically, economic development officials in Alabama, Kansas, North Carolina and Utah are all putting together bids to lure Boeing to their states. State legislators in Missouri, for example, are offering $1.7 billion in incentives for Boeing, the New York Times reports.

 

     That’s because Boeing has announced it may move production of its next generation of commercial airplane, the 777X out of Everett, Washington. Indeed, with a deadline looming this week for best offers, and a decision promised by the company early next year, tens of thousands of jobs and billions of dollars in wages and taxes are a stake.

 

     Boeing had conditions from the beginning on the 777X: big incentives from the State of Washington and big givebacks by its largest union, the International Association of Machinists and Aerospace Workers. The state came through, delivering in a special session of the Legislature a package worth $8.7 billion through 2040, the NYT reports. But union members balked, voting down last month a contract extension that would have frozen their pensions. So Boeing began sending out requests for proposals to more than a dozen states and cities around the nation.

 

     It’s worth noting that Boeing has already moved thousands of jobs away from Washington in recent years and has said that diversification is a long-term corporate strategy. It is developing a propulsion operation in South Carolina, Boeing announced it is establishing engineering design centers in South Carolina and California, and corporate headquarters are located in Chicago.

 

     Be that as it may, Washington State officials point out the state’s workers have experience in producing airplanes under deadline conditions and Washington is closer to Asian suppliers and customers than most competitors, which is an important consideration for ocean-borne freight shipment.

 

     “The one place in the world that knows how to build a plane like this is Washington,” says Alex Pietsch, in the NYT article. Pietsch, the director of the office of aerospace for Washington’s governor, Jay Inslee, adds, “This is where Boeing can build with the least risk.”

 

     What caught my eye is the larger implication, which is the effect Boeing’s move may have on the Seattle region. Industry experts say aircraft making is becoming less and less an assembly-line business, and, instead, highly technical components such as wings and floor assemblies are fabricated in far-flung places—often by lesser-trained and lower-paid workers, and by robots--and then assembled later in other locations. One question then becomes: If Boeing were to leave, could Seattle become the next Detroit? For now, it’s anybody’s guess where Boeing may end up, or even stay put.

 

What do you think? Has your company been lured by tax or economic incentives?

     Amid recent reports that fingerprint technology will increasingly be used in cellphones and that Microsoft has developed a "smart bra" (smart bra?!), the news that seems to be generating the most interest is that Amazon has plans to use drone technology to deliver products to customers in minutes.

 

     In an interview that aired last Sunday on CBS’s 60 Minutes program, Amazon founder and CEO Jeff Bezos explained that the company is developing a new drone-based delivery service that could get products to customers in less than 30 minutes. Being developed under the name Amazon Prime Air, the program takes fulfillment possibilities to another level because an octocopter drone—carrying a plastic container weighing up to five pounds—will be ready to follow GPS coordinates within a 10 mile radius. This video on the Washinton Post’s website shows the octocopter drone in flight.

 

     Thankfully, as Maureen Dowd noted in an op-ed column on the New York Times, Bezos went on to add that the program won’t start until Amazon has “all the systems you need to say, ‘Look, this thing can’t land on somebody’s head while they’re walking around their neighborhood.’” But that could very well be the stumbling block for Amazon.

 

     Indeed, one of the chief obstacles would be to get the drones approved by the FAA. An article on Supply Chain Digest reports that Loren Thompson, an analyst at the Lexington Institute, told the Financial Times that the dangers of drones flying in civil aerospace likely means that regulatators could never accept them in the numbers Amazon would need to provide a viable service. The less expensive type drones Amazon is testing lack the sophisticated sensory systems more expensive military drones have, meaning risks of collisions and accidents could be high.

 

     “I’m not sure putting this number of drones in metropolitan airspace could ever be made safe,” Thompson says in the article, SC Digest reports. “The likelihood that drones would hit high structures and electrical structures is very great because they probably would lack the internal memory to maneuver around such objects,” he says.

 

     Was Bezos serious, or as some skeptics argue, was the announcement really just an excuse to get people talking about Amazon and its Prime subscription service? In some respects, I’m not sure it really matters. People are talking about the use of drones, and how they could be used in the supply chain.

 

    There are other applications as well. For example, Farhad Manjoo wrote in the Wall Street Journal that before drones will fly to doorsteps delivering packages of soap, they will be seen delivering medicine in developing countries, coordinating emergency relief after disasters, and monitoring crops to improve how we grow food.

 

     For the transportation of crucial goods, small drones have several distinct advantages over ground-based vehicles, says Andreas Raptopoulos in Manjoo’s article. Raptopoulos, one of the founders of Matternet—which is building a UAV transportation system that he says will be useful in developing countries that lack passable roads—goes on to say drones are fast, energy efficient and they don’t require huge investments in infrastructure to start working.

 

     “A billion people around the world live in areas that aren’t accessible by roads during all seasons,” Raptopoulos says. “In such places, including large swaths of Sub-Saharan Africa, drones might deliver medicine or emergency-relief items without incurring the time, expense and environmental destruction associated with road building.”

 

     So, in all seriousness, do you think drone technology will find a place in the supply chain? If so, where are some instances the technology may make an impact?

     Last week, President Barack Obama signed the Drug Quality and Security Act—a new law created to safeguard the U.S. pharmaceutical supply from counterfeit and contaminated drugs. There are two points about the bill, which had been passed by Congress with bipartisan support, which stand out. First, it creates a national system to track and authenticate prescription medications as they progress from the manufacturer to the patient. Secondly, the bill also addresses the risks posed by drugs made by large-scale compounding pharmacies.

 

     So, to the first point, the Drug Quality and Security Act requires pharmaceutical manufacturers to place a unique serial number on every package of prescription drugs. It further mandates that each package be tracked electronically as it moves from the manufacturer to the wholesaler to the pharmacy. That will enable companies in the supply chain to check a drug’s serial number to ensure that it’s authentic.

 

     Pharmaceutical compounding—the creation of customized medicines to meet patients’ unique needs—was traditionally practiced by pharmacies and regulated by state authorities. However, as Pew Health points out, over time, the practice has expanded to include companies that compound on a large scale, creating thousands of medicines and shipping them to hospitals and doctor’s offices across the country but not under the same scrutiny given to pharmaceutical manufacturers.

 

     Unfortunately, compounding pharmacies were in the news quite a bit last year because contaminated compounded drugs caused numerous deaths and injuries. Most notable were the cases of fungal meningitis—caused by the sale and injection of a contaminated steroid injection—that have been associated with 64 deaths and 751 serious illnesses as of November 2013, Pew reports.


     Counterfeit and contaminated drugs aren’t just problems in the U.S. So I was interested to also see last week that 10 international organizations have joined forces in a new campaign called Fight the Fakes to boost cooperation in the battle against counterfeit medicines. An article on Securing Industry reports that at the official launch of the campaign, the founder organizations—which span healthcare professionals, disease-specific organizations, product-development partnerships, foundations, international financing institutions, as well as the research-based pharmaceutical industry—pledged to “raise awareness about the dangers of fake medicines by giving a voice to those who have been personally impacted and sharing the stories of those working to put a stop to this threat
to public health.”

 

     A joint statement from the groups goes on to say the Fight the Fakes campaign is designed to raise awareness about the “under-reported, yet growing threat” of fake medicines, which “trick patients into believing they are receiving genuine medicines while they are getting deceitful products that could cause further illness, disability or even death,” Securing Industry’s article reports. “In launching this new campaign, partners share the belief that to address this public health threat, public awareness and coordinated actions among all actors involved in the manufacturing and distribution of medicines are vital.”

 

     I am curious to know what you think. It would seem that a new drug quality and security law may make a significant impact. However, the plans to create an electronic, interoperable system to identify and trace certain prescription drugs will take 10 years to phase in, so this isn’t a quick fix.