Pigs and Lessons About Off-Shore Supply Chains

What do pigs in China have to do with supply-base intelligence and having the right tools in place to monitor your off-shore supply chain? Actually, quite a bit.

Yesterday news broke that a popular blood thinner sold by major U.S. pharmaceutical company Baxter International could be at fault in at least four deaths and hundreds of illnesses among users of the drug. This put the issue of off-shore supply-chain management back in the spotlight. There is no evidence yet that the deaths or illnesses are directly linked to any element of Baxter's highly leveraged supply-chain. But chances are that such a link will soon emerge.

Baxter purchases the active ingredient for its blood thinner Heparin from a Milwaukee-based supplier called Scientific Protein Laboratories (SPL). SPL relies on a factory in China that it majority-owns through a joint-venture with a Chinese pharmaceutical company.

It is worth noting that the financial and ownership structure of the U.S.-Chinese joint venture makes it nearly impossible to determine which, if any party, could ultimately be held to account for these deaths and injuries if it is determined that tainted heparin was the cause. SPL's joint-venture partner is owned by multiple, related Chinese pharmaceutical entities. And the SPL joint-venture actually supplies key drug ingredients back to the multiple entities that own its local joint venture partner. Still with us? If not, that's OK.

Suffice it to say that this is one huge reason why any company that relies on off-shore suppliers needs to know exactly what is going on within its supply chain. And we're not just talking about knowing the level of incoming and outgoing quality for you suppliers' factories or the levels of compliance with worker-safety and environmental standards (all important pieces of information certainly). We're talking about knowing who you can turn to overseas to get answers, action and remediation when things get muddied up within your supply chain.

Consider the Baxter supply chain for heparin ingredients. Which executive among the seven Chinese firms that have an operating interest in its Chinese joint venture do you think SPL can pin down to get answers, support and resolution? How many will try to hide behind the corporate “veils” that the complex financial structure of the joint-venture affords? Baxter and SPL will soon find out.

OK, so how do pigs fit into all this? Here's how. The key active ingredient in question is derived from the lining of pig intestines. Big deal, you're thinking, this ingredient is widely available – even online through our good friends at Alibaba!

Well, if you're a pig in China these days, you might be a bit concerned about catching a mysterious porcine virus that's spreading quickly throughout the country. And if you're a responsible global supply-chain manager, you'll want to know just about all you can about the key raw material ingredients for your end products.

Is there any connection between the outbreak among Chinese swine and possible tainted ingredients in Baxter's human blood-thinning drug? We can't say yet. But we can assure you that if one of our key products depended on a long, complex and geographically-distributed supply chain, we would want to have intelligence into every level of the supply chain, including:

• any leading information about events that could affect raw material quality (say, a porcine virus) so we could seek safe alternate sources of supply; and

• data about the ownership structure of our key off-shore partners so we would know exactly who to finger and coordinate with if something went wrong.

Operating off-shore supply-chains in high-risk geographies without such information is simply asking for trouble.