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 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.
Examples of the operational and financial impact of Warning Letters or other regulatory actions due to product quality issues
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.