Thursday, December 27, 2007

SC Visibility: Rapidly Evolving Scope, Part II

Simultaneous Compliance with Multi-Country Regulations!

In February 2007, I had written about the high level of complexity involved in manufacturing products that need to be simultaneously compliant with the regulations of different countries, stating that 'in fact manufacturers may need to very their production process based on the country they are exporting their products to... ' (more)

FDA and the Pharma Giants
For instance, after the FDA found manufacturing deficiencies in Glaxo's Cidra plant at Puerto Rico, Glaxo had to sign a consent decree requiring it to post a US$ 650 million bond contingent on it agreeing to rectify the problems. Subsequently, Glaxo went ahead and reconfigured the Cidra plant to produce drugs complying with FDA regulations, which were only for consumption of Americans! Wyeth had similar problems with its pharmaceutical plant in Guauama.

Americans reject Chinese Goods ....
Earlier this year, toy companies in the US - which rely on China for 80% of the toys sold in the US - were forced to recall series of toys. Mega Brands had to recall almost 4 million magnetic building sets after some children were seriously injured after swallowing the magnets. Mattel too had a series of recalls, first for the use of swallowable magnets, and then for use of lead paint that can be highly toxic if ingested by children. Similarly Toys R Us recalled Chinese crayons.

Elsewhere Chinese-made toothpaste was recalled when it was found to contain hazardous chemicals that are found in antifreeze. There were also cases of pets dying purportedly due to tainted grains exported from China. Among other imported goods, defective tyres, easily flammable infant clothes and defective electrical circuited breakers were other major recalls during 2007 in the US.

China attempted to show it was controlling the problem by executing the head of its FDA - Zheng Xiaoyu - for corruption. Nonetheless, this certainly affected sales of Chinese goods in the US during 2007, and translated into a huge bonanza for European manufacturers who started advertising their wares as being 'China-free', and capitalized hugely on the anti-China press during the Christmas season!

.... while the Chinese reject American Goods!
The wave of recalls in the US was reciprocated by China recalling US goods: A top official in the Chinese government's inspection office, gave the Wall Street Journal a list of US products imported into China which were found to be defective, including trucks, medical devices and farm equipment!

Compliance with Quality Standards: Additional Pressure on Supply Chains
As all of this drives home the harsh reality that companies outsourcing manufacturing need not just visibility into the manufacturing process, but also into the level of compliance with quality standards and processes of individual companies, as per the differing requirements of each country to which the goods will be exported.

From here it certainly looks like the cost increase due to ensuring tighter compliance with quality standards, when combined with rising fuel costs and a weakening dollar, is going to put tremendous pressure on global supply chains, which will have to scramble to find new ways to manage their costs!

End of this two-part article.
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