A New Decade of Supplier Quality

New challenges force firms to develop novel approaches to supply chain issues.

Gerard Pearce, SQA Services

In 1999, the theme of the IFPSM World Congress on Supply Chain Management was “2000 and Beyond: Vanishing Borders and Expanding Horizons.” As we embark on a new decade, we find that

supply chain borders have vanished and horizons have expanded. We also have found that new challenges have emerged, that everything moves faster, and that financial pressures are forcing more companies to think carefully about where to apply their precious supplier quality management resources.

In the last 10 years, companies have become adept at harnessing the power of complex global supply networks. By leveraging the comparative advantage of various geographic regions, as well as a global footprint in the case of multinational bodies, companies have developed supply chains that are more agile, responsive and cost-effective. The same cannot be said for the supplier quality function, given the rising trend in warning letters in this area issued by the U.S. Food and Drug Administration. While supply chains continue to evolve into complex global networks, the supplier quality function of many companies has been left standing still.

New Decade, Old Challenges

Between 2005 and the end of 2009, the number of device manufacturer warning letters that cited problems with supplier evaluation and purchasing data has doubled. Approximately two in every five of these companies is inadequate in this area. This represents an alarming trend—not just because of the negative impact of a warning letter, but because of the broader risk of an unsecure supply chain. Recalls and patient problems can be devastating to a manufacturer. After all, it is the manufacturer’s name on a faulty product, not that of a poor-performing supplier.

So why does it seem that supplier quality is not keeping pace with the supply chain? The section of the federal regulation covering purchasing controls (820.50) focuses on supplier evaluation and purchasing data. The data aspect is dependent on the evaluation aspect, and the evaluation aspect is subject to challenges inside the organization, inside the supply chain and outside the supply chain. Evaluation is the key to better control. It must be done effectively and in conjunction with the development of fewer and better key suppliers.

Challenges Inside Your Company

The simplest and most obvious challenge for any function in an organization is matching resources with requirements. For the supplier quality function of any medium or large company, the exact nature of the supply base represents a constantly moving target. This is especially the case for companies undergoing a merge, split, consolidation or other type of infrastructure change.

Even with a stable number of suppliers, companies still struggle with the effective use of their best supplier quality people. While supply networks expand overseas, supplier quality groups are typically clustered around central manufacturing or corporate locations, resulting in more travel and less time doing what they do best. Also, a more complex supply chain requires more up-front “detective work” to create an adequate supplier profile, and more back-end follow-up work to close out issues—all of which eats into your supplier quality resources.

Another challenge of the supplier quality function of larger organizations is staying internally connected. Many organizations maintain a largely decentralized supplier quality function in order to remain responsive to individual divisions, operations or even plants. Unfortunately, this leads to a lack of information sharing and standard practice that could offer economies of scale across the organization.

The tools and techniques of the supplier quality function need to be in sync with the advanced supply chain that it is tasked with controlling. Companies still operate processes that are facilitated by e-mail and isolated data repositories. Such processes are highly reactive, non-relational and not measured for improvement.

Challenges Inside the Supply Chain

With new horizons and fewer borders, the supply chain of most companies spans the globe. This in itself presents several challenges, the most obvious being distance. Travel time adds no value to the supplier quality function, yet supplier quality experts are spending more time in the air. In addition, political and other conditions dictate that there are some places your supplier quality team simply cannot go. Follow-up visits are questionable when travel time increases and political as well as socioeconomic conditions make on-site inspections unlikely. Besides a geographic divide, there are cultural and language divisions to be overcome that impact the expense and effectiveness of a supplier evaluation.

Like your company, suppliers are subject to structural changes too. Mergers, acquisitions, renaming and other changes all impact the currency and reliability of your evaluation data, even if the specification of the supplied product hasn’t changed.

In light of the global economic crisis many companies are considering the financial health, or in some cases survival, of their suppliers. This is a level of risk that has had renewed focus in the context of supplier evaluation.

Challenges Outside the Supply Chain

While the global economic crisis may directly impact suppliers within your supply chain, it also may explain an increase in the threat of economically motivated adulteration of products within that chain. This practice, involving the fraudulent, intentional substitution or addition of a material in a product for economic gain, can occur at any point in the supply chain, or directly in the marketplace. There are numerous documented cases of counterfeit medical devices in circulation around the globe.

Taking (Back) Control of Your Complex Global Supply Chain

As mentioned above, the key to effective supplier control is evaluation and data—the data side being largely dependent on effective evaluation. Therefore, an effective evaluation program will provide the foundation for a supplier quality management function that keeps pace with a complex supply chain. As such, you should expect to run the evaluation program as efficiently and effectively as any other critical part of the organization. To accomplish this, many companies need to revisit areas of planning, staffing, execution, closeout, continuous improvement, optimization, outsourcing, data sharing, automation and sharing of responsibility.

Planning and Staffing

Effective planning and staffing will address the challenges of matching resources with requirements, and making the most of your best supplier quality people. Planning must be a reflection of strategic and business goals, and should be aligned with dependent business areas, such as supply management and information technology (IT). For example, improved supplier quality agreements will require support from supply management, and a more “connected” supply base will require support from IT. One key strategic goal should be the collaboration between the supplier quality efforts of separate parts of the company.

With suitable goals in place and effective collaboration of supplier quality efforts, it is possible to develop a better picture of the supplier evaluation resources required to meet business and regulatory commitments. Good planning is dependent on good data (see data sharing and automation below). Better data will allow you to see where your ”hot spots” are, and whether your counterparts in other branches of the organization may have already covered a shared supplier. Coupling this with a suitable supply base risk analysis means that key supplier quality resources may be assigned to critical suppliers in predetermined regions.

Execution

The tools, techniques and systems involved in executing supplier evaluations often are the last to receive a quality upgrade, despite the expertise of the quality professionals that use them. Supplier evaluation is no different to any other critical activity and needs to be defined, standardized, measured and improved. For supplier evaluation, merely having a quality auditor on site at a supplier is a small part of a bigger picture, with significant supporting work required before and after. By documenting the process flow involved, steps and roles may be optimized (e.g., reassigning administrative tasks from auditors), the process can be measured and improved, and the organization can drive greater value from the activity (e.g. more accurate risk management based on audit results).

The documented process for supplier evaluation will reflect the overall goals for the supplier quality function—typically improved quality, regulatory compliance and reduced risk and cost of quality. This also is the place to broaden the scope of the evaluation process. For example, companies can expand the process to increase their business value (by introducing industry research), or to prevent counterfeits (by introducing high-risk indicators).

The refinement of the supplier evaluation process goes hand-in-hand with collaboration and standardization between supplier quality groups across the organization. Diverse and dynamic companies often create divisional supplier quality functions in isolation. However, there almost always is overlap between supply bases and gains to be made through standardization of internal best practices. By gaining consensus on ways to measure and manage suppliers, resources and results can be shared across the organization. This develops a powerful and value-adding synergy between teams. Visibility between these teams is critical to this synergy and should be a central theme to any standardization effort.

Close-out

Effective supplier quality operations don’t consider a supplier evaluation complete until the last finding is closed out. Following evaluation findings until closure not only confirms that problems are addressed (or not), but also provides an opportunity to foster key supplier relationships. Because closing out supplier corrective action requests, or CARs, possibly is the most challenging and time-consuming part of the process (the main focus being on the evaluation itself), effective close-out requires separate resources and tools. Separate resources are required to free up quality auditors to continue evaluations, and tools are required to automate the tedious monitoring of due dates, responses and approvals between company and supplier.

Continuous Improvement

By turning the quality spotlight on themselves, supplier quality groups can use data on their own operation to improve decisions and identify sources of variation. There are many aspects of an evaluation program that may be monitored for control and improvement. These include team optimization (e.g. no “dead time,” grouping audits for reduced travel), on-target audit dates, audit report turnaround and corrective action closure. The tracking of such parameters should allow for exceptions, such as an unusually large or complex supplier requiring more on-site audit time.

Optimization and Exception Handling

By using the same quality tools that are applied in the field with suppliers, supplier quality groups can enhance their operation, while minimizing disruptions. With a well-defined supplier evaluation process, a Failure Mode and Effects Analysis (FMEA) is an excellent way to prepare for exceptions that invariably occur. This disciplined approach to identifying and preventing possible failures can save an enormous amount of time spent in escalation, backtracking and rework. It can address such concerns as what could happen if a supplier refuses an audit, if inadequate evidence is obtained during the audit, or if a supplier is unresponsive. In performing an FMEA, the entire process is mapped, showing every step and critical feature. Depending on risk, appropriate changes and mitigation measures can be taken.

Outsourcing Can Help

The most effective supplier quality groups commit their key people to their best, worst and most strategic suppliers. Typically what remains is a balance of necessary, but non-critical evaluations to be performed. These evaluations can be performed using a third-party audit service provider, trained and internally certified to company procedures. Used on demand, and under the banner of your own audit methodology, a third party makes an effective and necessary extension of your supplier quality organization.

Data Sharing

To eliminate the duplication of effort and redundancy of data that plagues many supplier quality functions within large organizations, leading companies continuously develop ways to internally collaborate. Ideally, supplier quality groups leverage work performed by their peers on common suppliers. For this to be effective, standard tools must be established—or at least common elements. To provide visibility and distribute data effectively, there also must be a system in place that overcomes internal system boundaries, and accommodates “local” solutions. More advanced organizations use Web-based tools that provide transparency of supplier evaluation activity across multiple divisions and upstream in their supply chains.

The Automation Equation

An advanced, open and specialized solution is required to facilitate all of these aspects of an effective supplier evaluation process. A supplier evaluation solution must automate traditional manual activity, monitor the steps and status of a multitude of activities, fit seamlessly with a broader IT strategy (and legacy systems), and be accessible to both internal and external bodies (similar to other divisions and suppliers). At a minimum, the goal for such a system should be the automation of all of data exchange and collection activities. Aside from the obvious efficiency benefits, advances in this area open doors to capabilities not previously possible. For example, results of supplier evaluations can be linked with any related corrective action or follow-up (or history), and may be combined with other results to answer questions such as “Who are my riskiest suppliers?” and “What are typical problem areas for suppliers of a particular commodity?” The best companies share this data with suppliers, using it to drive action and improvement.

Sharing Responsibility

World-class companies involve their suppliers in the evaluation process, having gained agreement up front on quality levels and participation in quality programs. One of the benefits for the supplier is a release from the burden of manual exchanges of data, particularly in the area of upstream information, such as CAR responses, process capability and internal quality performance. The most efficient way to collect any data is by capturing it once, at the source. While some companies have introduced a supplier portal to facilitate purchasing transactions, few have taken it to the level of sharing quality data. With a capable system in place, companies should expect to share multi-aspect supplier scorecards, self-audits, and exchanges of everything from certificates of compliance to corrective actions.

2010 and Beyond

With many borders bridged and new horizons conquered, companies need to turn their attention to ensuring their supplier quality functions are well-equipped to maintain control over their complex supply chains. Control, in the regulatory sense, begins with an effective and efficient supplier evaluation program. To achieve this, supplier quality managers need to adopt some creative ways to cover their expanded territory, and take a regular dose of their own quality improvement medicine.

Gerard Pearce is executive vice president of SQA Services Inc., a Los Angeles-based company specializing in global supplier quality management. Gerard has more than 20 years’ experience in combining the fields of quality, supply management and technology. He published “The Purchasing Revolution” in 1999 and served on the committee of the World Congress of the International Federation of Purchasing and Supply Management. He is heavily involved in shaping and implementing the global outsourcing quality strategy for SQA’s Fortune 500 clients in a variety of industries, including medical device, pharmaceutical, aerospace and high-tech. He can be reached at [email protected] or through www. sqaservices.com.