Almost every time I open my inbox, there’s an article to read or an industry conference invitation focusing on issues of corporate responsibility and liability, pushing regulatory agencies to implement stricter supply chain regulations. Our industry has an opportunity to take meaningful action rather than continue to motivate the lawmakers and government regulators into action. I recommend we exercise some time-tested, old-fashioned good manufacturing practices (excuse the pun).
According to industry quality control and compliance publication The Silver Sheet, of the 97 warning letters issued by the U.S. Food and Drug Administration (FDA) to device makers in 2008, including at least one quality system violation, 35 contained purchasing control citations. Our collective industry performance in managing our supply chains has caused FDA leaders to rethink their Quality System Inspection Technique focus and to leverage some of the $511 million budget increase for 2010 to deploy an additional 346 staffers to focus on drug and medical device products. Rather than speculating about upcoming regulatory changes and scrutiny, I advocate doing what we can (and should): improve our supply chain management practices.
Supply Chain Management as a Business Process
Viewed as a business process, supply chain management breaks down to four key elements: supply chain strategy, supplier qualification, supplier selection and supply chain surveillance. Supply chain strategy defines the relationship between a company and its suppliers in terms of collectively serving stakeholders: customers, industry and ownership. Supplier qualification defines the minimum characteristics of partner candidates, while supplier selection is more granular in guiding specific decision in awarding business. Finally, supply chain surveillance is the “trust but verify” prudent element of any relationship. As with any good business process, this one is most effective when iterative in nature. Surveillance observations either challenge or confirm the effectiveness of the strategy, qualification and selection, and adjustments follow. There are many tactical tools worthy of a closer look.
Supply Chain Strategy
Supply chain strategy is the relationship basis to best serve our stakeholders. There are many points to consider when defining these critical relationships, including:
• Technology integration
• Cash-to-cash management
• Target pricing
• Capacity management
• Regional presence
• Make/buy positioning
• Intellectual property management
• Product design
• Material optimization
• Collaborative research anddevelopment
Companies exhibiting best practices in supply chain management typically have multiple strategies, each focused on a specific business segment. Strategies can be focused by raw material, product category, operating division, market position, product life cycle position, technology, manufacturing process, geography, risk, cost or intellectual property. The supply chain strategy for high-risk, high-tech, intellectual property-rich products should be very different than the strategy for low-risk commodity products. The entire materials portfolio should be analyzed, grouped in a logical fashion, and a strategy should be developed for each. Although often tempting to limit the work on low-risk commodity products, all disruptions in the supply chain are costly, regardless of complexity and financial value of the products. Once strategies are well-defined, characteristics of suitable partner candidates can be identified.
Supplier qualification is the most frequently overlooked step in supply chain management. Supplier qualification is the opportunity to define the key characteristics of ideal supplier candidates for each strategy. Characteristics worth considering include:
• Quality and continuousimprovement
• Industry experience
• Technological capabilities
• Financial stability
• Infrastructure alignment
• Management team strength
• Company size
• Client portfolio
• Design for manufacturabilitycapability
• Quality system
• Engineering and designcapabilities
• Compliance: TS/ISO 16949, ISO9001, etc.
• Supply chain management
The primary consideration here must be possible risk to the business. Questions to ask in this evaluation are: What do we risk in the event of a supply disruption? What are our risks associated with undetected product quality problems from this material/component? What are the risks of our intellectual property rights being violated by a supplier partner? What are the risks of outgrowing a supplier partner in this product category or of a supplier outgrowing us? What are our risks of a supplier partner failing financially? What could be gained and/or lost if we’re their largest client or the smallest?
Answering these critical questions will narrow the focus of supplier candidates, facilitating a more efficient supplier selection process.
Supplier selection is a granular-level process where business is awarded based on specific requirements and vendor candidate differentiators. Depending upon the type of supplier sought, typical selection criteria include:
• Elemental level quote analysis
• Program/launch management
• Preproduction approval process
• Agility and flexibility
• Total cost
• Production and distributioncapacity
• Advanced product qualityplanning
• Design and process failureand effect mode analysis
• Technology capabilities
• Packaging capabilities
• Control plans
Selection may be on one or several criteria depending upon what’s critical for the specific piece of business. Criteria should be established, quantified and prioritized. Request for quotes can then be standardized, uniformly issued and responses evaluated fairly and efficiently. Awarding business to a vendor candidate changes the relationship from a courtship to a marriage, requiring ongoing review and support.
Supply Chain Surveillance
Supply chain surveillance is most effective and value-added for both parties when approached with a collaborative partnership style. Traditional audits that “catch” problems, discrepancies and non-compliances issuing corrective actions and/or penalties are costly, ineffective and archaic. The most effective surveillance systems typically contain many assessment elements including:
• Launch management
• Lead time reduction
• Supply chain scorecard
• Product and service delivery
• Product and service quality
• Problem reporting and resolution
• Financial stability
• Continuous Improvement
• Supplier chain management
• Scheduled price reductions
• Joint venture value-added exercises
The goals of the surveillance process are to keep both parties honest, review additional opportunities and build the relationship. If done well, there should be no surprises. When the relationship adds value to both enterprises, then it should be grown. If not, and there’s sufficient trust, resolutions can be explored, or a constructive exit plan devised. Business relationships are dynamic; as the business climate changes, supply chain relationships also will change. Consider supplier surveillance as a proactive change control tool.
FDA 21 CFR 820 Sub Part E Purchasing Controls regulation requires medical device companies to establish and maintain procedures to evaluate suppliers, exercise supplier controls commensurate with evaluations and performance, as well as establish and maintain associated records. In addition to meeting these requirements, this process also deploys a variety of time-tested tools and methodologies, yielding cost-effective risk management, predictable quality and delivery performance, methods to manage cutting-edge technologies, ongoing cost controls and sustained growth. Every supply chain is an extension of the base enterprise, offering many opportunities waiting to be leveraged. Managing supply chain resources warrants the same degree of management discipline and rigor as strategizing, qualifying, selecting and monitoring a company’s internal human and capital resources, with or without regulations. It’s just good business.