Clues to Supply Chain Surprises

How the Flu Shortage Could Have Been Foreseen

By Philip W. Spayd

My freshman English professor at Penn State was from the old school. He wore a coat and tie, took attendance and called his students “Mr.” or “Miss.” His questions were very tough. I no longer remember his name, but I do remember a point he searingly made in class.

We were discussing a story by Ambrose Bierce.

“Mr. Spayd,” he asked, “can you describe the ending of this story?”

I was relieved at this simple question and replied that it was a “surprise ending.”

The professor then said that “in literature and in life, there are few surprise endings for the intelligent observer.” He went on to describe all the clues in the story that the intelligent reader would have recognized, so that he would not have been surprised by the ending.

It is a point that has remained with me.

Fast forward to the 2004/2005 flu season, and the shortage of vaccine. Could this “surprise ending” have been foreseen, and could there have been better planning to mitigate the consequences?

The production of flu vaccine is a risky business for pharmaceuticals. The number of manufacturers has been declining because of low profitability in vaccine production, greatly varying demand from year to year, and a complex and stringent set of federal standards governing production.

The New York Times reported that “public health experts have long cautioned against the country’s dependence on a few vaccine makers, and yet this has become standard practice. There are now only two major manufacturers for the nation’s supply of flu vaccine, and at least half a dozen other vaccines are made by single suppliers. Britain, by contrast, has spread its order for flu vaccines among five suppliers, precisely to avoid the kind of predicament America now faces.” Two companies, Chiron Corporation and Aventis Pasteur now supply nearly 100 percent of the nation’s flu vaccine, divided approximately in equal parts.

The shortage in flu vaccine arose when British regulators determined that there were violations of “good manufacturing practices” at Chiron’s Liverpool facility, where the vaccine was to be manufactured, and suspended Chiron’s license to produce the vaccine there. The Food and Drug Administration announced that it had done its own review of Chiron’s manufacturing operations in Liverpool, and found that none of the vaccine made at the plant was salvageable for shipment to the U.S. Thus the stage was set for the shortage in influenza vaccine in a year in which 36,000 Americans are expected to die from the disease.

Was this is a surprise ending, or would my English professor’s intelligent observer have been able to discern the warning signs, planned to reduce the risks associated with the limited number of suppliers, and developed a strategy to deal with a disruption to the supply chain?

Warning Signs

There are inherent risks to having a limited number of suppliers for a key product or component. Action should have been taken by the Center for Disease Control and Prevention to find alternative suppliers and to have contingent contracts for the manufacture of the flu vaccine in the event of a disruption. In looking at its risk profile, it should have been evident to the CDC that it was too high when the supply was limited to two firms. The center should have developed alternate sources, and endeavored to make arrangements with other governments for supply contracts in the event of a supply chain disruption.

As late as September 28, Chiron noted in a press release that President and CEO Howard Pien appeared on that day before the U.S. Senate Special Committee on Aging in a hearing entitled, “Combating the Flu: Keeping Seniors Alive.” He noted the importance of widespread vaccination and the need to prepare for a flu pandemic. He reiterated that Chiron would be able to supply 46 to 48 million doses of Fluvirin to the U.S. market for the 2004-05 flu season.

However, a month earlier, on Aug. 26, Chiron issued a press release saying that “in conducting final internal release procedures for its Fluvirin influenza virus vaccine, the company's quality systems have identified a small number of lots that do not meet product sterility specifications. While ongoing internal investigations into the root cause of the variance indicate no widespread issues with the manufacturing process, Chiron has delayed releasing any Fluvirin doses until it has completed additional release tests.”

And before that, as reported in The New York Times, an FDA inspection in June, 2003, of the Liverpool facility, which had been purchased from PowderJect Pharmaceuticals, found quality control problems similar to those found by the British regulators this year.

The facts were there to be discerned by our intelligent observer. The dangerous situation caused by the limited number of vaccine suppliers was exacerbated by quality control problems within the manufacturing process of one of the suppliers who was to be relied upon to produce nearly one half the vaccine doses for this coming flu season.

Planning Lack

When the fact of the vaccine shortage became evident, did the CDC, the FDA and Department of Health and Human Services implement their contingency plans for dealing with this supply chain disruption?

Reuters reported that acting FDA Director Dr. Lester Crawford said, “We are checking every known source and every government we deal with” in looking for alternate supplies. USA Today quoted a CDC spokesman as saying, “All options are on the table.”

Hindsight offers a comfortable vantage for reviewing the actions of the responsible parties, but it is evident that there was a lack of contingency planning associated with this high-risk approach to dealing with the supply of vaccine for this flu season.

Here are some questions that the CDC, FDA, DHHS, Chiron and Aventis should have addressed:

Supply chain security: Do you have data about the real source of the components of your products? About the actuality of the movements? About the degree of corruption in your transactions? About the wages and working conditions of your suppliers and their suppliers?
Risk management: Are your models based on data? Are they related to the functional realities of your operations?
Vulnerability: Do you know what they are? Do you do scenario planning? Do you know your nightmare scenario?
Supply chain resiliency: Can you carry it out, keeping in mind what happens will not be what you planned for.
Collateral benefits: Do you understand the needs to discover and create new value and improve long-term productivity as you strengthen your supply chains?
Business interruption: On a higher level, is there a plan for major interruptions in your business? Do you have a continuation of operation plan?
Security culture: Are you managing an operation with a high degree of security culture enmeshed in your systems and the behaviors of your employees?
Business intelligence: Do you have a framework to develop business intelligence about emerging risks to your supply chains and business operations?

As a postscript, the breakdown in the nation’s supply chain for flu vaccine occurred with a condition—the onset of the flu season—that is well known to federal officials and vaccine producers. One hopes there is better planning for an attack using biological weapons.

Philip W. Spayd is the director of Global Trade Systems