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2014

 

The news last summer was startling: China had been investigating GlaxoSmithKline for suspected economic crimes. In fact, Chinese officials had 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.

 

In the latest twist, GlaxoSmithKline recently confirmed the existence of a covert sex tape of its former China head, Mark Reilly and his girlfriend, which had been sent to company executives, according to an article on The Guardian. Accompanying the footage were detailed allegations of sales and marketing practices described as “pervasive corruption” by an anonymous writer, the article explains.

 

This news comes a little more than a month after Chinese police shocked the foreign business community when they filed corruption charges against Reilly, alleging he helped set up and expand sales departments that offered bribes to doctors in return for prescribing drugs. The Briton, who has been barred from leaving China, could face decades in prison. The London-based company also faces a U.K. criminal probe.

 

Over the course of the Chinese anti-corruption investigation, all big drugmakers in China have come under scrutiny from police or regulators. Last year authorities visited Novartis AG of Switzerland, Britain’s AstraZeneca Plc, Sanofi SA of France, U.S. firm Eli Lilly & Co, Germany’s Bayer AG and Danish drugmaker Novo Nordisk A/S. All said they were cooperating with the authorities and that they do not condone bribery.

 

The larger implications are the real news in all this, however. Indeed, China’s crackdown on corruption in the pharmaceutical sector has given foreign executives such anxiety that some fear they could be jailed and have asked their lawyers if they should leave the country for six months, reports a Reuters article. The same article notes that other executives and in-house counsel had sought legal advice about leaving China to avoid getting caught up in any future probes. Still others are actively pursuing career options outside China, said one source.

 

Many clients are asking about personal liabilities and insurance, with executives asking if they are put in jail what will happen to their families and how the company will provide protection for them, says John Huang, Shanghai-based co-founder and managing partner at law firm MWE China, in the article.

 

Some drug makers are even changing their executive leadership practices. These companies are putting more Chinese nationals in important positions in the country to avoid the kind of bribery scandal plaguing GlaxoSmithKline.

 

“Some companies are having more Chinese people in key positions,” Richard Bergstroem, director general of the Brussels-based European Federation of Pharmaceutical Industries and Associations, says in a Bloomberg article. “To conduct audits further down in the organization, and to understand what’s going on, they need people on the ground. Preferably you have someone who speaks the local language.”

 

While companies are taking steps to ensure they don’t harbor improper practices in their Chinese divisions, the larger issue that needs to be addressed is that reforms to the Chinese health system are needed to remove incentives for corruption, Bergstroem says. Some Chinese hospitals get as much as half of their revenue from prescribing drugs and procedures, leading to over-prescription, he said.

 

“This hasn’t been fixed yet in China,” Bergstroem said in a telephone interview with Bloomberg reporters. “Despite years of attempts and numerous reports, they’ve not been able to take out these strange incentives in the system. For a Western company coming in with its rules and—hopefully—its values, it’s very difficult to operate in an environment where the other side isn’t governed properly.”

 

What do you think? Will China’s crackdown eliminate bribes and kickbacks? Will having more Chinese executives create a culture change?

 

 

Think “recent major automotive recall,” and your thoughts probably turn to GM. But another recall is in the news this week—and it involves several automotive companies and a key supplier.

 

On Monday, Honda, Mazda and Nissan recalled almost three million cars with potentially explosive air bags supplied by Takata Corp., a major manufacturer of airbags, seat belts, steering wheels and other auto parts. Toyota had announced a recall of vehicles with the air bags last week. The series of recalls cover both passenger-side and driver-side air bags, which Takata, the world’s second-biggest automotive safety parts maker, manufactured in 2000-02. The potentially flawed Takata air bag inflators run a risk of exploding and shooting out shrapnel at drivers and passengers.

 

These latest recalls bring the total recall so far to about 10.5 million vehicles over the past five years, which ranks it among the five biggest recalls in the auto industry’s history.

 

But that might not be all. The tally continues to expand as Honda, BMW, Chrysler, Ford, Mazda, Nissan and Toyota all announced this week they are recalling more vehicles in some high humidity regions in the U.S., in what they called a “field action,” at the request of the National Highway Traffic Safety Administration (NHTSA) to replace Takata air bag inflators.

 

In this wider action, Honda said it is recalling about 2.03 million vehicles globally, and is an expansion of a recall from April 2013. Nissan said it would recall 755,000 vehicles worldwide, while Mazda said it would call back 159,807 vehicles. Both companies are also expanding April 2013 recalls.

 

Germany’s BMW Group is analyzing a limited number of its cars in Hawaii, Puerto Rico and the Virgin Islands, it announced on Monday, as part of the broader investigation into the safety of Takata air bags. It’s not a safety recall, but instead is a “special technical campaign,” a BMW spokesperson said, adding there are no known safety incidents involving Takata air bags in BMW cars.

 

Takata Chief Executive Officer Shigehisa Takada and Chief Operating Officer Stefan Stocker said the company was working with safety regulators and car makers. “We will aim to further strengthen our quality control system and work united as a company to prevent problems from happening again,” they said in a statement.

 

At issue are two main problems. The first is moisture due to improper storage at the factory is believed to have degraded the inflators, causing them to potentially explode, according to an Auto News article. From 2000 to 2002, Takata plants in Washington state and Mexico used some propellant that had been exposed to moisture. In a statement issued June 20, Shigehisa Takada confirmed that the inflators may have been damaged by moisture but also cited humid weather as a possible cause.

 

“We currently believe the high levels of absolute humidity in those states [Florida, Puerto Rico] are important factors; and as a result our engineers are analyzing the impact that humidity may have on the potential for an inflator malfunction,” Takada said.

 

The second and perhaps larger issue for the supply chain is that Takata fixed the problem at the factories but faulty record-keeping hampered it from identifying batches of the inflators that may malfunction. The result is that since it appears to be unknown which vehicles might have inadvertently received faulty propellant, the auto companies are now forced to widen their recalls.

 

What are your thoughts? Do the recalls make you wonder about your suppliers’ manufacturing as well as record keeping capabilities?

 

 

Two key problems restraining sales of electric vehicles—other than price—are a lack of charging stations and lack of industry standards for technology. In a display of potential collaboration, however, that may be about to change.

 

Indeed, electric car-makers Nissan and BMW are keen to collaborate with Tesla Motors after the U.S. company agreed to share its patents with competitors, the Financial Times reported. Nissan, the world’s largest electric-car manufacturer, along with BMW and Tesla, together account for about 80 percent of the world’s battery-run electric car sales, the newspaper said.

 

Elon Musk, Tesla’s CEO wrote in a recent blog post that there had been a wall of Tesla patents in the lobby of its Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology, he continued.

 

“Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal,” Musk wrote. “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

 

The reason for the change in thinking is that given annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it’s impossible for Tesla to build electric cars fast enough to address the carbon crisis, Musk believes. At the same time, however, it does mean the market is enormous. The true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline-powered cars pouring out of the world’s factories every day, Musk says.

 

That all apparently comes as good news to other companies which welcome the opportunity to collaborate. As The Financial Times recently reported, both Nissan and BMW are willing to have talks with Tesla to discuss the opportunity to develop charging stations with joint efforts, which then could be used by the vehicles manufactured by all the three giants. An undisclosed source told FT that “It is obviously clear that everyone would benefit if there was a far more simple way for everyone to charge their cars.”

 

It also seems there is more than simply interest. Executives from BMW and Tesla met this week in a move which could lead to the creation of charging stations usable for different types of electric cars, an article in the Chicago Tribune reports. The companies seek ways to raise the popularity of battery-powered vehicles, which consumers have shunned due to their limited operating range, the scarcity of charging stations and the time it takes to recharge them, the article notes.

 

“Both companies are strongly committed to the success of electro-mobility and discussed how to further strengthen the development of electro-mobility on an international level,” a BMW spokesman said in a statement, according to the article.

 

In some respects, it’s surprising these types of talks haven’t happened yet. By working together, the companies can simultaneously address both consumer perception and a lack of a common charging station, which is a key challenge. Those efforts could go a long way toward changing people’s minds about the viability of electric vehicles.

 

What do you think? Is this type of collaboration a win-win?

 

 

When companies evaluate where they should locate operations, executives typically consider factors such as labor supply, cost of labor, taxes, condition of infrastructure and regulatory environment. However, the risk of supply chain disruptions—whether caused by natural disasters, extreme weather conditions, geopolitical strife, or other factors—should be evaluated as well.

 

It also is increasingly important to consider that risk. Indeed, global executives report that not only are supply chain disruptions growing in frequency, they also are having a larger negative impact. For instance, nearly half of the executives taking part in a Deloitte survey said the frequency of risk events that had negative outcomes has increased over the last three years. What’s more, more than half of them said supply chain disruptions have become more costly over the last three years.

 

The challenge is to determine how a country’s susceptibility to supply chain disruption can be measured. To address that need, commercial property insurer FM Global recently introduced what it calls the 2014 FM Global Resilience Index. The online, data-driven tool ranks the business resilience of 130 countries so executives are better able to assess and manage supply chain risk, and in turn, prioritize supply chain risk management and investment efforts.

 

“Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation,” says Jonathan Hall, executive vice president, FM Global. “As supply chains become more global, complex and interdependent, it’s essential for decision makers to have concrete facts and intelligence about where their facilities—and their suppliers’ facilities—are located.”

 

I was interested to see that Norway, Switzerland and Canada top the list of nations most resilient to supply chain disruption. At the other end of the spectrum, Kyrgyzstan, Venezuela and the Dominican Republic were found to be least resilient to supply chain disruption. The country making the most improvement since 2013 is Bosnia and Herzegovina, which climbed 19 places due to improvements in the country’s political risk and in the quality of local suppliers. One of the countries quickly getting riskier is Bangladesh, which fell significantly due to declining quality of both natural hazard risk management and fire risk management.

 

Two countries I think most executives would be interested in checking on are the U.S. and China, both of which are divided into three separate regions because the geographic spread of both countries produces significantly different exposure to natural hazards. All three regions of the U.S. rank in the top 25 and China’s regions rank 61, 66 and 75. China’s weakest region, which includes Shanghai, ranks particularly low as a result of its high risk stemming from acute natural hazards, according to the index.

 

FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings to promote intelligent discussion about building resilience and avoiding supply chain disruption. The data comes from a combination of independent third-party sources and FM Global’s RiskMark benchmarking algorithm, which measures the risk quality of more than 100,000 insured commercial properties worldwide.

 

Wildfires in the Western U.S., hurricanes in the Eastern U.S., flooding and earthquakes in recent years in Thailand and Japan, and continued geopolitical turmoil in other parts of the world are all significant factors to consider. As companies place more emphasis on shifting operations to be closer to consumers, it certainly makes sense to evaluate the potential for supply chain disruption in various countries.

 

Does your company evaluate the potential risk of supply chain disruption in countries where it—and its partners—conduct business?

 

 

 

 

While the U.S. manufacturing industry seems to be in the midst of an economic resurgence, the industry’s ongoing skills gap effects as much as 80 percent of manufacturers, and is further exacerbated by the underrepresentation of women.

 

“The skills shortage facing U.S. manufacturers is apparent and the underrepresentation of women only contributes to the gap,” says Jennifer McNelly, president of The Manufacturing Institute. “We must empower each other as ambassadors of the industry so we can inspire the next-generation of young women to pursue manufacturing careers and encourage current female talent within the industry.”

 

Building on their previous women in manufacturing research, The Manufacturing Institute and Deloitte held an executive roundtable earlier this year. Senior executives representing automotive, aerospace and defense, process and diversified manufacturing discussed how manufacturers can best attract, retain and advance talented women in the manufacturing industry. They focused on the C-suite’s role in changing the corporate culture in the manufacturing industry, the American public’s perception of the industry, and how companies can create a strong employer brand. In particular, they discussed the significant concerns they all have about finding enough talent to drive their organizations in the future and how vitally important women are to addressing that concern.

 

That roundtable is the basis for a new study, “Celebrating success, achievement and potential of women in manufacturing: A leadership view of overcoming the talent crisis and filling the skills gap.” The paper, from Deloitte and The Manufacturing Institute, details challenges and opportunities to integrate more women into the manufacturing workforce.

 

The executives at the roundtable responded to key questions such as:

 

•How can manufacturers improve the recruiting process of women and how far back into the “pipeline” do they need to go?

 

•What initiatives can companies take to encourage the personal development and professional progression of women?

 

•How can manufacturers support women in the industry and retain female workers?

 

Manufacturing executives suggested several strategies to help close the gender gap. One key strategy is to integrate women into the corporate strategy to lead a strategic cultural change while ensuring men are equally involved and committed to the efforts. Another step is to share leading practices and be proactive in providing resources to inform, educate and mentor women. The executives believe companies should use affinity groups to generate ideas, motivate peers and give/receive guidance. Another key strategy discussed by the executives is to engage The Manufacturing Institute’s STEP (Science, Technology, Engineering and Production) Ahead initiative to honor and promote the role of women in the manufacturing industry through recognition, research and leadership.

 

I was also interested this week to see Kinaxis recently sponsored a webinar titled, “Mentoring, Sponsorship, & Quotas: What are their relative merits in bringing more women into supply chain management?”

 

Lora Cecere, founder, Supply Chain Insights, facilitated the webinar, when she and a panel of accomplished supply chain practitioners discussed the issues of mentoring, sponsorship, and quotas as mechanisms to get more women into supply chain, and perhaps more importantly, the relative merits and drawbacks of these approaches.

 

Members of the panel were: Verda Blythe, Director, Grainger Center for Supply Chain Management, Wisconsin School of Business; Laura Dionne, Director, Worldwide Operations Planning, TriQuint; Elisabeth Kaszas, Director, Supply Chain, Amgen Inc.; and Shellie Molina, VP, Global Supply Chain, First Solar.

 

For some interesting insight and great advice, be sure to check out Lora’s blog post, in which she recaps some key parts of the webinar. To receive the recorded presentation, be sure to register here.

 

What do you think of the strategies and approaches in the study and webinar?

 

 

When Walmart pledged last year to buy an extra $50 billion in U.S.-made goods over the next decade, it appeared to give reshoring initiatives a shot in the arm—and it may still do so. After all, the company did host a U.S. Manufacturing Summit, which brought together representatives from 500 supplier companies, 32 state governments, major retail industry leaders and other retailers.

 

But as has been noted, reshoring initiates may not always go smoothly. Suppliers trying to reshore production face a number of challenges, including a shallow pool of component suppliers, a sometimes inexperienced workforce, and other obstacles.

 

“A lot of the tribal knowledge and skill sets are gone because the humans who used to do that work have either retired or died,” says H. Kim Kelley, CEO of Hampton Products International, in a recent Reuters story. The maker of locks, lighting and other household hardware began selling products made in Asia to Walmart in the 1990s, and is now supplying it with some U.S.-made products. Trying to rebuild that manufacturing capability, while making products that meet Walmart’s standards, can require companies to “start from scratch,” Kelley says.

 

Cindi Marsiglio, the Walmart vice president overseeing the U.S. sourcing push, says the retailer and its existing suppliers have 150 active reshoring projects in various stages of development. However, finding U.S.-made component parts has emerged as an on-going problem for all too many companies. For example, Hampton, which also makes tow straps, tie-downs and bungee cords for the automotive market, had a difficult time locating a U.S. maker of lightweight but strong polyester yarn. Other suppliers complain of difficulty finding small motors, as well as plastic injection molding equipment and computerized cut-and-sew tools, Marsiglio says in the Reuters article.

 

The issue is so widespread that Walmart is making it the focus of the company’s 2014 U.S. Manufacturing Summit this August in Denver. The company’s plan is to offer an opportunity for meetings between suppliers and raw material and component providers. Walmart also says it’s especially interested in having factory owners with excess capacity attend the event—even those that aren’t interested in supplying Walmart directly—in the hope that they can become contract manufacturers to Walmart suppliers looking to produce in the U.S.

 

In the meantime, Walmart will also host what it calls a Made in USA “Open Call” event this July at its Bentonville, Ark., home office to focus on new business development. Current suppliers that wish to present new categories will be featured alongside suppliers with U.S. manufacturing capabilities who aren’t currently doing business with Walmart.

 

Factors such as lower domestic energy prices, increasingly competitive wage rates paired with improved product quality, more control over the supply chain, and the ability to ship and deliver quickly to meet shifting U.S. customer demands are certainly appealing. At the same time, depending on industry, many companies’ long-term growth opportunities still lay in Asia, Latin America, Africa and other countries. Still, a case often can be made for reshoring at least some manufacturing—or at least considering the option.

 

If your company has—or is—reshoring production or some of it, what problems have been encountered? Will initiatives and forums such as those Walmart is sponsoring help?

 

 

Would you—or do you—purchase pharmaceuticals from an online pharmacy? As would be expected, a new study has found that most of those websites don’t meet basic laws and regulations for dispensing pharmaceuticals to consumers.

 

However, I did find the sheer scope interesting. The National Assn. of Boards of Pharmacy study found that 97 percent of the 10,758 websites investigated and reviewed by the organization don’t meet basic laws and regulations for dispensing pharmaceuticals to consumers. Furthermore, there are widespread violations on those rogue websites. For example, 88 percent of them don’t require a valid prescription; 49 percent of them offer foreign or non-FDA-approved drugs; 23 percent of the sites have an address outside the U.S., and most post no address whatsoever; and 16 percent of the sites aren’t secure, which puts consumers’ financial and identity information at risk.

 

The hazard also is worldwide. Recently though, to tackle the issue, nearly 200 enforcement agencies across 111 countries took part in Operation Pangea VII to target criminal networks behind the sale of fake medicines via illicit online pharmacies. The operation led to 237 arrests worldwide and the seizure of nearly U.S. $36 million worth of potentially dangerous medicines, Interpol reports.

 

Coordinated by Interpol, the operation involved law enforcement agencies, industry associations and private sector companies—including G2 Web Services, LegitScript, MasterCard, Microsoft, PayPal and Visa. The operation focused on social media channels, and took down more than 19,000 ads for falsified and otherwise illegal medicines on channels such as Facebook, YouTube and Twitter, and also closed approximately 10,600 websites.

 

As well as raids at physical addresses linked to the illicit pharmaceutical websites, some 543,000 packages were inspected by customs and regulatory authorities, of which nearly 20,000 were seized. Among the 9.4 million fake and illicit medicines seized during the operation were slimming pills, cancer medication, erectile dysfunction pills, cough and cold medication, anti-malarial, cholesterol medication and nutritional products.

 

As part of the operation, the U.S. Food and Drug Administration and the U.S. Customs and Border Protection conducted extensive examinations at U.S.-based international mail facilities, where many packages containing prescription drugs enter the U.S. The agencies found that most of the examined packages contained illegal prescription drugs that had been ordered from online sources.

 

One of the problems, notes the FDA, is that many American consumers order medicines from online sources believing they will receive the same medicine as the U.S. approved version. These medicines, however, are often unapproved or counterfeit, and come from countries with less stringent manufacturing standards or regulatory controls. Many illegal online pharmacies purport to sell drugs identical to the U.S. approved versions to attract consumers, but they actually send consumers unapproved, counterfeit or substandard versions.

 

“When consumers buy prescription drugs from outside the legitimate supply chain, they cannot know if the medicines they receive are counterfeit or even if they contain the right active ingredient in the proper dosages,” says Douglas Stearn, director of the FDA’s Office of Enforcement and Import Operations. “Consumers have little or no legal recourse if they experience a reaction to the unregulated medication or if they receive no therapeutic benefit at all. In addition to health risks, these pharmacies pose other risks to consumers, including credit card fraud, identity theft or computer viruses.”

 

One of the most important steps to help protect consumers is public education. Toward that end, NABP’s VIPPS (Verified Internet Pharmacy Practice Sites) accreditation program is helpful. The FDA also gives consumers information about ways they can identify an illegal pharmacy website and advice on how to find a safe online pharmacy through BeSafeRx: Know Your Online Pharmacy.

 

What do you think of these international efforts to close illicit online pharmacies? What role do you think consumer education should play in these efforts? What else can be done?