10 Lessons From A Near $350 Million Loss
And how it was turned around to make a $3 million profit
Yes, we are talking in US Dollars.
Just to let you know, because of some peculiar accounting standards, the total amount could have been more, way more.
Also, for simplicity’s sake and to not have to bore you with the complexities of the business model back then, let’s just agree that it was a very big number that included more than enough chest pain zeros.
The learnings that day and the 10 days that followed remain as valid now as they did then.
They continue to serve me well.
First of all, a little background.
My career has for almost its entirety been in MedTech and pharma.
It’s been a wild journey and has taken me to more countries than I could have imagined, with more adventures than I could have wished for.
I must say, though that after 20+ years of being a “device guy” in the industry, I swore never to work in pharma.
Never say never.
Over the years, advances in therapeutics with expensive and lengthy R&D and regulatory timelines, not to mention shareholder demands, have continued to drive pharmaceutical costs ever upward.
And that’s at an individual pack or box level.
More recently, the complexities of many of the newer drugs to maintain their stability require very precise temperature control in how they are stored and moved.
It’s the job of the pharmaceutical distributor to do just that, manage the storage, distribution and movement of these drugs to hospitals and pharmacies.
These temperature-sensitive drugs are kept in giant fridges that maintain a temperature of between 2 - 8 degrees C and sometimes far lower.
It’s a fairly complex process that, as it should be, is highly controlled and regulated with compliance, policies, and standard operating procedures in place for every step of the distribution process.
Every once in a while though, something doesn’t go quite as planned.
And this particular Friday was one of them.
Why do things always go wrong on Fridays?
Here we go.
A Friday afternoon around 4 pm
As always seems to be the case, just when the end of the week is in sight, something happens.
To coin the phrase, “and so there I was,” there I was, running one of the largest pharmaceutical distribution companies in town.
On this particular Friday, I received a phone call from my Head of Quality.
They never call me directly.
This was not a good sign.
The issue they explained was a cold room temperature excursion, meaning that one of the big fridges that I mentioned above, where we stored pharmaceuticals, had for a period of time, recorded a temperature a degree or so higher than it should be.
The value of the inventory held in this one cold room was in the region of $350 million.
Yes, you read that right, $350,000,000.
It was a heart-stopping, jaw-dropping amount.
Monopoly dollars.
It was a problem of such enormity that it would have had a material impact on the total group performance.
The biggest loss incurred by the company in its history.
It is not something I was keen to have on my resume.
It was a problem that I had absolutely no idea how to even start to fix.
People say that moments like this have the potential to make or break you personally and professionally not to mention, mentally.
That they are character-building.
Honestly, right then, these weren’t even remote considerations.
The priority at hand was to address the issue.
But how?
I remember the phrase from the great writer and author Douglas Adams, “Don’t Panic,” crossed my mind, possibly even made me laugh at its irony.
Was it working?
I had no time to think about it.
The clock was ticking
This is what we did and how the next week or so of our lives played out.
Teamwork - Spread the Load
The first order of action was to gather together a core group from my leadership team, made up of operations, commercial, finance and quality. As some of them, in typical fashion, had already drifted off for the weekend, we agreed to regroup at a nearby bar in an hour.
Armed with pitchers of beer, we sat down to discuss the problem and try and make sense of what we needed to do.
The question of insurance quickly came up.
“It’s OK, we are insured, right?” I asked starting my third beer in as many minutes.
“Well, yes and no,” replied my earlier in the day, tea-total finance manager, already drinking a beer himself.
My response, a little bemused now with a growing sense that Douglas Adams was overly optimistic, “What part, the yes or the no part?
“Both.”
“Both?”
“Yes both, we are insured, but to around 30% of the value.”
I guess at this point, I went a bit pale.
But it was their knowledge that I needed now more than ever and their expertise.
Panic wasn't going to help a bit; we needed to remain as calm as we could.
Call Your Boss
They are going to find out anyway, so you may as well get that call out of the way early on.
Best case, it’s a false alarm.
Worst case, they know you’re not trying to hide something from them.
This was a call that I made that very evening and fueled with a little added confidence from the beer, I picked up the phone.
“Hi, boss, I have an issue’, and went on to explain the details as much as I knew them.
Silence.
“Got it. Understood, thanks for telling me. Keep me updated,” was more or less his response which to be fair was a bit lukewarm at best.
After all, I had just potentially ruined his weekend as well.
Tell The Truth
Don’t exaggerate the upside or the downside.
Tell it as it is, and be truthful. As Jack Welch famously said, “Things will get worse anyway before they get better.” In my experience, he was right.
Truth and honesty are your friends.
Be consistent, and you dial your stress back down by not having to remember anything to the contrary.
Leverage Expertise
The role of the leader is not to know the answer to every question.
Having the humility to know that you don’t know all the answers and not being afraid to ask for advice is a far more valuable leadership trait.
A competent leader knows that they don’t know how to answer all the questions.
A competent leader does, though, know how to find answers through help, guidance or the expertise of others.
Knowing who to ask for help is key to solving a problem, with the bonus of developing team cohesion and a culture of trust along the way.
Ask for Help
It was clear right away that we were way out of our depths.
At a local operational level, there wasn’t too much that we could immediately do.
All relevant SOPs had been followed, and all affected products were quarantined.
We needed greater guidance, though, so picking up that phone again or sending a request for help from other teams in other countries provided an additional layer of experience and support for us troops to draw upon.
It was, after all, our local issue, but the impact would be felt far and wide within the company, and so we were all in this together.
Agree on a Communication Window
This one is key.
Everyone wants the latest news and real-time updates, but this is more of a hindrance than a help for those on the front line.
A communication window is an important and often overlooked practice that is essential for maintaining good operations not to mention, the mental health of everyone involved.
My team and I needed time to work on the problem, and not with 24/7 oversight.
After we had the initial painful calls to clients and our leadership out of the way, my request was clear, “give my team and me time and space to work on the problem.”
We agreed on a daily call at 1600 whether there was “news” or not.
This agreement was important for everyone as it meant that life could retain a certain degree of normality without obsessively waiting for the phone to ring or an email to land.
It’s a technique used in the military and NASA and allows everyone to get on with their jobs without being micromanaged every step of the way.
The same was the case with my clients. I needed time and space to work, and I needed them to give that to me.
Once again, my company leadership and clients all gave me the freedom that I needed to work
Communicate, Comunicate, Commuicate
There are often differing views on this one.
While I do agree that communication can be situation-specific, I’ve yet to come across a crisis where over-communication was criticised.
With the situation at hand, a communication window agreed and a bit more understood, if not more under control, the time had come to pick up the phone and share the news with my boss and clients.
And that’s when something strange happened.
The simple act of making that call was empowering.
A little tension lifted.
Without exception, every CEO, Managing Director and General Manager that I spoke with was supportive and grateful for being told as quickly as they were; at this point, we were about T minus 4 hours into the problem.
Communicate fast and communicate early, stay in front of the news and you can limit gossip and speculation.
Remember Your Communication Hierarchy
A bit more from me on how to communicate shows how critical this is in any crisis.
As important as it is to get the first message out, think about who needs to be told first.
It’s called a Communication Tree, which tells when and how a message is cascaded through an organisation and in what order.
In the corporate world, people can get mighty hierarchical about when they were informed and who knew before them.
It’s all too easy to overlook the obvious and forget to include a critical stakeholder, especially one who can support or worse sabotage your efforts.
I would suggest you write this list down and keep it safe.
Work on the principle that if you have it, you hopefully won’t need it.
Get Legal Involved - Early
Hopefully, you won’t need them
But if there is one thing that I have learned working with legal teams over the years, it is that they don’t like surprises.
Getting your counsel involved early on, even if just for a “heads up,” gives them time to think about what could be around the corner and how to prepare.
Contracts need to be reviewed and contingencies planned.
Would my clients terminate us or sue us?
What is our liability?
What is our risk of exposure?
Will this end up in the media?
All key points to understand early on.
One last point on lawyers.
Don’t communicate anything that could be “binding” or an admission externally without their sign-off, even more so if there is any threat of a legal challenge coming your way.
As I said, get your legal team involved early on and hope they don’t need to go “full-legal” to help.
With all this now in place, my team and I felt a bit less isolated and no longer facing imminent doom we settled into a long wait that would last around ten days.
Pharmaceuticals, when registered, are all required to have a supportive documentation dossier on the stability of the drug and its various compounds under various temperatures and environments.
In short, there is a maximum period at a maximum temperature deviation, high or low, where there is no impact on the drug's safety or efficacy, and this information will need to be extracted, analysed and compared against the temperature information that we had on hand, plus all the data collected from the point of shipment.
Establishing this, though, takes time and requires significant coordination and cooperation from the quality departments of the manufacturers themselves all the way back to the manufacturing site.
Thankfully, they all played ball.
Luck May Have A Say
While not a point in itself, luck can and often does get involved.
It is said that you make your own luck, but in reality, in my mind, this comes down more to preparation and practice having an impact on the outcome.
A little luck, though, doesn’t hurt to have on your side.
We Were Lucky
Crisis and disaster were averted thanks to the hard work and expertise of the team, and the support and trust from our clients.
The final loss came down to around US 5,000 of new pharmaceuticals that didn't yet have the critical stability data available as they were part of a clinical study and surplus.
To say we all breathed a collective sigh of relief would be the understatement of the century.
Keep The Faith
There is no doubt that luck played a part in the outcome, but keeping a positive mindset throughout definitely helped secure the outcome that we managed.
At a time of crisis, giving up, running away or pretending nothing happened isn’t going to solve anything.
The best approach is never to play the victim.
Take control of what you can control and keep moving forward.
Making the $10,000,000
As fate or perhaps luck would have it, this incident all took place during the run-up to the negotiation and renewal of one of our critical contracts.
A contract value to the company of around $7-8M and one that we desperately needed to keep.
During the discussions with the renewal team from the company involved, the question was asked by the lead from their quality team.
“Had we ever experienced a critical cold chain incident?”
Without hesitation, my response was, “Yes, around six months before, it was one that they were a part of.”
“Thank you for your honesty, we know,” their quality head replied.
“We know these things happen, but we also know that your honesty and transparency in managing the situation gives us the confidence to renew our agreement with you.”
And that is exactly what happened.
The contract was renewed and even expanded to accommodate their business growth
The net result was then a new $10M contract renewed with an expected 30% growth in their business.
In all, we didn’t lose a single client.
Learning from mistakes
When everything settled, and with life and blood pressure returning to normal, we carried out a detailed debrief that pulled together all of the lessons learned over the past two weeks.
What happened, why did it happen and how to avoid it from happening again?
I won't go into all the details here, but it’s fair to say that the root cause, (as we say in the trade), was something simple, something avoidable and something that could be fixed.
And fixed it was.
With an additional layer of training, incident practices and procedures were put in place to hopefully ensure none of us had to go through a situation like that again.
Fingers crossed.
There you go, as a reminder, these are the lessons learned.
Teamwork - Spread The Load
Call Your Boss
Tell The Truth
Leverage Expertise
As For Help
Agree On A Communications Window
Communicate, Communicate, Communicate
Remember Your Communication Hierarchy
Get Legal Involved Early
Keep The Faith
I hope that you enjoyed reading and please drop in a comment below.
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I remember it well!
Decent tactics I’d never even thought of there. Glad you and your team saved the day!
Thank you for the wisdom.