In part 1 of a series on supply chain risk, Russ Berland begins a discussion addressing supply chain risk: the gaps, the frauds, the disconnects, the counterfeits, the gray market. Consider: to the extent that these are our supply chains, they are someone else’s distribution channel.
A mother in Kenya has a child who is sick with malaria; he is listless and has a high fever. She goes to the local drug market to purchase malaria medicine and gives the medicine to her child, but his fever increases and he dies. The drug she gave him was a counterfeit. If she had had the real drug, his life could have been spared. This situation happens daily, as drug counterfeiters and gray markets infiltrate the pharmaceutical distribution channel and, in this case, this woman’s personal supply chain.
Counterfeit goods are just one risk in supply chains and distribution channels. Besides counterfeit drugs, we see counterfeit athletic and fashion shoes, computers and server parts, consumer electronics, personal care products, wallets, watches and jewelry, food and even automotive parts.[1] Gray market goods are real goods that leave the distribution chain under some reduced pricing program for specific markets – think HIV drugs for Africa – and re-enter a higher-cost market to compete on price. These gray market goods may be spoiled, stored past expiration, adulterated, fail to meet market and local legal requirements and be subject to innumerable other uncontrollable conditions.
How could this mother buy fake malaria drugs in Kenya? According to the World Health Organization, more than 120,000 people die every year using fake anti-malarial drugs. Some have estimated that up to one-third of anti-malarial drugs in sub-Saharan Africa are fake.[2] And these counterfeit drugs are used and sold by clinics, pharmacies, street vendors and online.
We are experiencing these risks in the U.S., as well. For example, after increased visibility into opioid over-prescription and addiction, regulations, doctors and pharmacies are becoming tighter on the control of these medications. This has created an opportunity for criminals to sell “prescription” oxycodone and other opioids, which do not even contain these medications. Instead, they sell pills that are molded in the shape of oxycodone and other painkillers and dispensed in legitimate-looking pharmacy bottles, but that actually contain a small quantity of fentanyl and filler.[3] Fentanyl is a pain killer that is at least 50 times more powerful than heroin and highly dangerous if used improperly.
Ashley Romero was a 32-year-old mother who had dealt with acute pain from flare-ups of pancreatitis. Her boyfriend obtained a bottle of prescription oxycodone pills from a friend. During a flare-up, while she was cooking eggs and potatoes on the stove, he gave her one of those pills and then he took one himself. They both became disoriented, left the food cooking on the stove and were found unconscious outside their home. EMTs were able to revive the boyfriend, but not Romero. The pills they took actually contained fentanyl, not oxycodone, and they both experienced symptoms of fentanyl overdose.[4] Five people have been charged in Romero’s death, including a person who was believed to have made monthly trips to Mexico to obtain the fake oxycodone pills. Fentanyl-laced pills are now widely available on internet pharmacies, often labeled as “Canadian” pharmacies, in legitimate-looking prescription pain pills labeled as hydrocodone, oxycodone and other pain relievers.[5] These fentanyl-laced pills are being found globally; in some cases, they are sold by smaller pharmacies believing they are buying legitimate medicine from a lower-cost source, such as the gray market.
In other industries, manufacturers are buying counterfeit batteries and chargers, leading to underperformance and even fires. Auto mechanics are buying counterfeit “OEM” replacement parts like air bags, which are substandard and dangerous. Consumers are buying counterfeit products off the internet every few seconds, often not knowing the nature and tangled origin of the goods.
This article has focused on just one subset (pharmaceuticals) of one set (counterfeit and gray-market goods) of supply chain and distribution chain risks. In order to create comprehensive risk management systems for our supply chains and distribution channels, we must understand the risks we face.
As with any good system, we will examine the tools at our disposal, such as risk assessments and analyses, policies, training, communications, internal governance, internal controls, employees’ incentives and discipline, audits, investigations, background data reports on distributors, resellers/vendors and such emerging solutions as big data, artificial intelligence, blockchain and RFID tags. We will examine each aspect of the interlinked domains of supply chain risk management and distribution chain risk management – both the risks and the risk management opportunities.
Stay tuned for the next installment in the series, on risks in food distribution and sourcing.
[1] https://finance.yahoo.com/news/10-most-counterfeited-products-america-100032647.html
[2] https://www.bbc.com/news/business-37470667
[3] https://www.safemedicines.org/wp-content/uploads/2018/08/Fentanyl101-infographic-4p.pdf
[4] https://www.gjsentinel.com/news/western_colorado/a-family-tragedy-a-public-warning/article_14778f8e-744d-11e8-a998-10604b9ffe60.html
[5] https://www.safemedicines.org/2019/02/five-people-charged-over-the-death-of-ashley-romero-from-a-fake-fentanyl-pill.html
Russ Berland is a seasoned leader who creates value in an organization by leading high-performance teams in law, compliance and risk management. He works with innovative, multinational organizations and has achieved measurable and timely results in the areas of law, compliance, strategic planning, international business and risk management. As an engineer and former federal court law clerk, he achieves business objectives and solves problems via deep experience, innovation with sound judgment and effective and efficient management of people, resources and costs. Russ is special consulting counsel at Greathouse Holloway & McFadden.
