Earlier this year, the Supply Chain Matters blog commented on the ongoing product recall issues impacting the McNeil Consumer Health Care division of Johnson and Johnson (J&J).  Several months later, the situation continues and now sobering evidence is mounting that J&J is at financial and possibly brand risk. More sobering, it also involves what was previously cited as the icon for risk mitigation.

Two quality related glitches are noted culprits. An occurrence of musty or moldy odors emanating from leaching chemicals on wooden pallets was the initial problem leading to massive recalls of products, and now production quality control issues related to improper batch sizing and existence of metal flakes are further compounding this difficult situation involving McNeill, the maker of many noteworthy and trusted consumer brands. The April 30 recall involving 130 million bottles of infant and children’s medicines were related to these quality control issues.

A new AP press report circulating across news outlets indicates that sales of J&J pain reliever products are collapsing as consumers become very wary regarding the perception of quality in certain J&J products. The article notes that sales figures reported by market research firm SymphonyIRI indicate a 56 percent drop in sales of J&J pain relievers in the four weeks ending June 13, compared to a year earlier, and sales of liquid pain relievers such as Children’s Tylenol fell 96 percent.  Together, these events have apparently led to millions of dollars in lost sales thus far, and a tarnished reputation to former stellar brands.  While the U.S. FDA continues to state that there are no serious health risks involved in these ongoing incidents, the die of consumer concern has apparently accelerated.

Another related article featured on AdvertisingAge notes that the current precipitous decline rivals the 80% plunge in Tylenol sales following the 1982 incident of willful product contamination in the Chicago area. The article further speculates that J&J is facing another possible mortal blow to the Tylenol and other associated brand names, with no recovery clearly in sight. J&J issued a statement on June 24 indicating that it doesn’t anticipate having alternative sources of supply before the end of 2010.  Meanwhile the company continues to conduct an ongoing comprehensive audit and assessment of all of its manufacturing operations.

We have continuously noted on Supply Chain Matters that when a major crisis occurs in the supply chain, it is critical that a pre-planned mitigation and crisis response team is called to action.  Senior leadership visibility and sense of control is essential, albeit not in the character of the ongoing oil spill crisis involving BP.  What makes this incident all the more perplexing is that J&J was previously noted as the case study reference in how to best respond to a major product recall incident.  That was then, and this is now, and apparently J&J lost its perspective on pro-active supply chain risk identification and mitigation.

We trust that J&J will ultimately gain control of this ongoing crisis and hopefully salvage brand perceptions, but in the meantime, our community will have to find a new case study reference in supply chain risk mitigation.

Bob Ferrari