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Managing Supplier Quality
An enterprise-wide process is key
by Tim Mohn
Tightly regulated businesses, such as food and beverage manufacturers, are experiencing struggles between opposing forces—supply chain efficiency and supplier quality. The key issue is the detachment of the board, which drives product life cycles for optimum profitability, from the quality managers, who are looking to enforce strict procedures to ensure product quality.
In no way does this statement imply that C-level executives are not concerned about product quality or that quality managers have no commercial understanding in relation to overall financial performance. It simply means that because the responsibilities and objectives of these teams are very different, quality can be overridden in favor of production efficiency and revenue increases.
The irony is that poor quality can devastate share prices and destroy brands. Quality issues could stem from inferior ingredients, substandard packaging, contamination on the production line, or incorrect information on the labels, all of which are likely to have been supplied by a “trusted” but unmanaged supplier.
Products can only be made to the standards determined by consumers, public health agencies, and regulators if they are manufactured with the highest quality components and ingredients. Gone are the days of supplier loyalty. Quality teams must continually monitor the quality and consistency of raw materials from both existing and new suppliers and prioritize future procurement from these suppliers.
Accomplishing these tasks manually is error prone and time consuming. The process requires extensive tracking and management of supplier qualifications, audits, non-conformances, corrective actions, and other processes. The total cost of the supplier relationship also has to be calculated and factored in.
Quality Management Challenges
To better understand the critical need for managing supply quality as part of a broader quality management system, it is necessary to examine where things currently stand. Companies trying to implement an effective process for managing supplier quality face several challenges extending beyond the elements of the supply chain into the overall quality control processes of the business operations.
Inefficient, Decentralized Reporting: Highly regulated businesses are required to audit all suppliers and provide reports to the appropriate regulatory body detailing their suppliers’ operations. However, even with the technology now available to track and report on supplier activities, many businesses, including blue chip companies, still use ad hoc and often manual methods that combine pen and paper with Excel spreadsheets to document and record processes. This approach results in inconsistencies, issues, and compliance failings.
Implementing a centralized system for tracking supplier data not only allows organizations to streamline reporting efforts and realize the benefits of a more efficient and compliant process, but different departments or sites can learn from the experience of others and ensure that the same mistakes are not made twice.
Lack of C-Level Involvement: Senior executives are usually focused on running the business. Quality management is considered a departmental concern, despite the parallels that run between quality and profitability. The board needs to adjust its thinking and consider the operational costs of recalling and replacing a product line.
Lack of Risk-Based Analysis: Without a risk-based calculator, valuable time and resources are allocated to assessing the risk of reliable suppliers that pose no threat to the larger operation.
Increased Global Pressures: Companies face extreme challenges as they manage increasingly global supply chains. Increased competition and the economy’s impact on the price of ingredients have made management of supply chain quality more challenging.
Although implementing a holistic program can require significant upfront resources, including system and infrastructure investments, training costs, and implementation time, what is gained in the end is worth more than the initial outlay. With an enterprise-wide quality management program, companies can also improve quality trending and management reporting by integrating purchasing and inventory systems with the quality management system.
An enterprise-wide centralized process must encompass several quality management and compliance components, including:
- Supplier Qualification: Managed qualification and approvals of new suppliers, including all necessary qualification steps, which may vary based on the supplier’s risk assessment and may include tasks such as self-assessment and on-site audit.
- Supplier Audits: Handle audits based on the risk level, audit frequency, and the supplier rating or score established in a supplier’s profile. When a trend in supplier quality problems is identified, companies must schedule ad hoc supplier audits. The audit process, related audit findings, and subsequent supplier corrective and preventive actions must be managed and tracked to ensure quick and effective resolution.
- Incoming Material Inspections: Create inspection records when materials are received to ensure tracking of all inspection activities, including inspection type, received date, material information, quantity, inspection results, and related information.
- Approved Supplier Lists and Scorecards: Enable the organization to maintain and monitor approved or preferred supplier lists. Approved supplier lists can be customized reports or online databases that can be reviewed and updated by qualified staff.
- Supplier Non-Conformance: Directly generate nonconforming material reports (NCMRs) from the inspection record or independently within the manufacturing operation when the materials are below quality control standards. Guarantee that the supplier investigations and root cause analyses are tracked through to completion.
- Supplier CAPAs: Track all supplier corrective and preventive actions (CAPAs) through to completion. Provide third party suppliers with secure access to view only their specific NCMRs and audit findings, and record corresponding corrective actions.
- Supplier Documentation: Maintain or link to documentation of important specifications, including inspection plans, delivery windows, and acceptance sampling for received items.
Managing supply quality effectively serves not only to drive compliance, but also to reduce the cost of poor quality, which, with both tangible and intangible ramifications (costs of product recalls, tarnished reputations, or brand image), can ultimately be a detriment to any food or beverage manufacturer.
Without a stringent, holistic, and centralized supply quality management initiative that drives numerous supply chain and organizational efficiencies, a company’s bottom-line objectives will be undermined, eroding any previous organizational successes.