I’m often asked about Return On Investment (ROI) and the justification of automation investments. One of the most intangible, yet possibly the most important justification is the cost of Non-Compliance to Good Manufacturing Practices.
Over the last 2 decades I’ve witnessed many companies come under heavy FDA pressure (i.e. Warning Letters & Consent Decrees) to remediate their Quality System compliance issues. When this happens there are invariably substantial costs.
In the past month alone, there have been several high visibility plant shut downs, recalls and a major GMP Consent Decree. These activities are leading many to re-examine their compliance exposure. When working with clients, here is my short list of contributors to the high costs of non-compliance.
GMP remediation can be quite expensive. One of the first steps many companies take in fixing GMP issues is hiring outside consulting firms to guide the company. In Consent Decrees, this is actually mandated by the FDA and the amount of work is sometimes onerous.
The costs continue to climb as processes are reviewed and changed, new equipment is purchased or refurbished and new employees are hired and trained. This is usually done in a short time frame also adding to the cost. Most remediation costs are higher than the costs that would have been originally incurred.
It goes without saying product recalls are expensive. Johnson & Johnson reported in 2011 that revenues would drop by $900M as a result of their product recalls. The costs typically incurred are:
- Customer Reimbursement
- Scrapped Product
- Recall Logistics
- Product Liability Claims
Brand Reputation and consumer trust, while hard to measure are also know to be at stake when products are recalled.
In the last few months there have been 3 important plant closings due to compliance issues. These are not small time operations; one plant is responsible for $1B worth of product or 25% of the company’s revenue. If a plant in not manufacturing and shipping product, it’s not making money.
One increasingly important consequence of plant shut downs is creating product shortages. Here the cost is not only measured in dollars but in people’s well being or even their lives. There is significant pressure to get these plants back on line and in compliance, when the costs run in the 100’s of millions of dollars.
In Part 2 of this series, I’ll look at 3 more contributors that will no doubt catch the attention of your senior management.