In yesterday’s Wall Street Journal I read two articles that at first glance seemed unrelated to each other. The first article is about China’s role in manufacturing raw heparin, a key ingredient in blood-thinning medicine that because of suspected impurities may be responsible for allergic reactions with 350 patients and the death of four. The second article discussed the fact that the U.S Department of Agriculture claimed that some 50 million pounds, roughly one-third of the 143 million pounds of California beef that was recalled last week, went to schools and that 20 million pounds of those 50 had already been eaten.
I am going to suggest that both cases have something in common. Bureaucrats and executives alike, believe that quality control systems and detailed knowledge about supply chains can guarantee quality. And that addressing these two aspects will make the problem go away. They are, of course, dead wrong.
The reality is that it is not the quality control system or a lack of knowledge that caused the failure. Rather, it is the design of these complex systems that is the root cause for the problems. The design has, for example, not taken into account that highly centralized systems cannot secure the quality of output through centrally determined rules, regulations, quality checks and inspections.
Let’s look at the beef system first. In 2007 there were 21 beef recalls in the U.S. for E. coli problems involving some 21.7 million pounds of meat. It was one of the worst years on record for beef safety. The recalls involved meat that had already reached the stores and consumers. In other words, the government was too late in each case.
Cows in the U.S. are now slaughtered in a few centralized slaughterhouses where 300 or more cows are processed every hour. All you need are one or two sick cows going through the same grinder and you have huge potential for contamination that goes into a distribution system that covers much of the U.S. In “Safe Food: Bacteria, Biotechnology, and Bioterrorism,” author Marion Nestle presented an interesting fact. I quote from The Economist: “A single lot of hamburger meat at one processing plant was determined recently to contain parts from 443 different cows.” This presents a fantastic opportunity for cross-contamination. Because cows are fed corn – for reasons that have to do with government subsidies – which is not what their biological system is made for, many cows become sick. The recent video from the Humane Society (warning, the images are quite graphic) exposed how these sick cows are still entering the food chain, against all rules and regulations. No inspection or regulatory system is set up to stop this. There are too many incentives to push all cows, sick and healthy, through the system. Everything is based on efficiency, economies of scale, more is better and faster throughput and distribution is what creates more profit. Consequently, preventing and tracking contaminated beef is almost impossible and by the way, responsible for some 2 million foodborne illnesses each year in the U.S. alone. So we have a system that is set up for failure.
The heparin case is different in that more than half of the world’s heparin comes from China. Heparin is produced through an intricate process from pig’s intestines before it reaches an IV bag in a hospital and is used world-wide by patients who have surgery and or need dialysis. The supply chain is poorly documented and recently 350 allergic reactions among patients in the U.S. were recorded and the FDA is currently investigating the deaths of 4 patients that may have been caused by heparin manufactured in China. The heparin involved was sold by Baxter International Inc. who said that “it selects suppliers that have proven quality track records.” One of Baxter’s main suppliers is Scientific Protein Laboratories whose president claims he can’t trace its supplies from China “in as much detail as it can from the U.S.” Investigations in heparin-producing-factories in China show “widely varying standards of regulatory oversight.” And anyone who reads the articles – and sees the online photos in the Wall Street Journal – will learn that the factories themselves have varying standards in everything from hygiene, administration, equipment to the level of training of workers. A global supply chain like this one for heparin is so complex that any suggestion that rules, regulations and inspection systems can guarantee quality are by definition false.
So here we have two core supply chains that impact societies we live in: one is food, the other is medicine. If we cannot trust quality systems for food and medicine what should we do? The answer lies not in beefing up – forgive the pun – inspection and control, but in dissolving the problems through redesigning the systems. The systems that currently produce the products are the same systems that enable the problems. Bill McKibben presents the idea of “Deep Economy” that involves self-organizing local communities where, for example, cities and local farmers manage quality of the food supply together because they are mutually dependent on each other. Feedback cycles would be immediate and possible foodborne illnesses – should they occur – would be limited to regions or cities rather than a whole country. In such communities we could also go back to having cows eating grass which is actually compatible with their stomachs! For such a community to work you would need small (local) slaughterhouses which the current government inspection system makes practically impossible. For interesting and original research on this topic I recommend Michael Pollan’s book “the Omnivore’s Dilemma.”
As for heparin the solution might involve an investment program from pharmaceutical companies in Chinese suppliers involving capital for appropriate facilities and on-the-job training. In essence, going local with investments and technology transfer. It might even lead to temporary partial ownership and therefore the creation of a radically different system than we have today. Quality is built-in rather than controlled through inspection.
The moral of these two stories for me is two-fold. First, government bureaucrats, politicians and business executives mistakenly believe that you can eradicate problems described here through punishment, legislation, better quality inspection, more rules and regulation and that the current system is not the leading cause of these problems. They need to be educated! Second, don’t eat beef and avoid surgery and dialysis.