Costs of Failure in Product Quality - Pharmaceutical Technology

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Costs of Failure in Product Quality
The authors detail the possible consequences of noncompliance and a lack of quality control.

Pharmaceutical Technology
Volume 36, Issue 4, pp. 110-118

Financial impact

Often the financial cost of quality deficiencies is measured by lost sales, lower production with increased production costs, and increased costs of material. Although these may represent direct cost, the indirect loss may be devastating for some companies and to a lesser extent for others with large cash-balance. However, on a relative basis, all companies will suffer tremendous loss that may be in tens of millions for smaller companies and in hundreds of millions or even more for larger companies. In the past several years, in addition to regulatory and monetary penalties, several companies became take-over targets and smaller companies have altogether disappeared because of inadequate quality in their operations and an inability to rectify the situation.

Examples of the operational and financial impact of Warning Letters or other regulatory actions due to product quality issues
The management team of a company, under constant internal and external pressures, has to develop effective plans and support mechanisms to address regulatory challenges, become fully compliant, and thwart competitive pressures with a positive influence on company's current and potential customers. Also, plans may have to be developed to address concerns and alleviate challenges raised by regulators, employees, financial institutions, public interest groups, investors, and stockholders.

Cost of outside consultants and higher production costs. The costs of bringing in outside expert consultants are high for big and small companies. Costs include not only those to resolve the immediate issues, but additional costs to have the appropriate proactive controls to avoid recurrence at all company facilities. Some companies may not have sufficient means to bear this cost. Although absolutely necessary for a long-term recovery and future profitability, hiring external experts impacts day-to-day work, output, efficiency, and morale. Personnel, equipment, and other resources need to be set aside and dedicated to the needs of the outside experts that may impact output and efficiency of the employees. Rebuilding proactive culture that avoids future problems and attends to moral and morale problems may be quite expensive and time consuming. This endeavor may also include consultants' expertise to build systems, troubleshooting emerging problems, and implement new technologies. The time taken and the cost of reactive remediation are several times more expensive than a proactive culture that avoids future problems (2). Due to specific goals, external experts may initiate different work orders or tasks and thus establish a significantly different work culture that may exert additional pressure and impact the productivity of the employees while the needed positive transformation gradually occurs. A great deal of employees' time is invested in the extra workload generated, which will impact their assigned tasks and goals. Thus, the employees' burnout rate escalates, and output is further compromised. Some of these are reflected as increased number of mistakes, lack of ownership, loss of initiative, and decreased interest in innovation to sustain business needs.

Higher production costs appear to be an inevitable result of recovery from regulatory and product issues. A drug manufacturer must be aware that each company must have proactive programs that may lead to additional production costs (3, 4). Thus, seemingly innocuous differences in an ingredient, active or inactive, may have a crucial effect on product quality and, therefore, result in higher production costs. For example, a small difference in the grade of petrolatum and even a different supplier with the same grade and specifications in a semisolid product may significantly change the product's appearance and long-term stability. A slight change in the particle size distribution of an ingredient may significantly affect product's quality and bioavailability.

As a result of such changes, even if the problem does not show out-of-specification results at the time of batch release, all dispatched or released batches need to be recalled, returned, or replaced with acceptable lots. Other contributing factors that increase production costs may include lower yield, higher scrap, more deviations and rejections to investigate, longer costly inventory hold times, production downtime to troubleshoot, and perhaps more complaints. Although such issues cannot be eliminated, proactive programs should be able to reduce their frequency and, therefore, minimize their effects.

As often stated in FDA Warning Letters, the company must re-evaluate its entire operations and quality procedures even for the products for which no problems have been noticed either by external auditors or using internal QA. Thus, company's overall productivity and profitability is seriously compromised.

Loss of trust

A company that receives an adverse quality communication (i.e., a warning letter, excess recalls, and seizures) faces mistrust and questions from everyone that has business dealings with the company. For example, will the company not be able to produce quality products and have adequate supply to satisfy the need in the market? Would the company be able to obtain an approval and supply a new product(s)?

A company may lose its influence with vendors to negotiate aggressive pricing and priority supply of materials. Vendors may ask to be paid in advance before supplying raw materials, and may become slow in responding to concerns about technical support of respective raw materials. Financial institutions may reduce credit, demand payments earlier than scheduled for financial services, and may even raise their interest rates. They may also refuse to provide additional credit and funds to satisfy current needs of the company.


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