Getting the Most Out of Supplier Data
Gerard Pearce
As supply chains of medical device manufacturers evolve and the supplier quality function within them adapts accordingly, the issue of supplier data becomes more prominent. This is not just from a regulatory standpoint, but also stems from a need for the supplier quality function to leverage available information to reduce costs and improve quality.
Managing and maintaining supplier data is already a requirement of 21 CFR 820 of the U.S. Food and Drug Administration’s good manufacturing practices requirements and quality system regulations. However, many companies remain unable to meet this obligation.
In 2008, 45 percent of medical device manufacturers that received warning letters about supplier practices were shown to have inadequate supplier evaluations (820.50.a). The other aspect of section 820.50 is the maintenance of adequate purchasing data. Of this same group of warning letter recipients, 55 percent were unable to conduct the required capture and tracking of purchasing data (820.50.b).
Obviously, maintaining compliance ensures that at least the basics of supplier data are in place.
However, many leading medical device manufacturers want to further develop their supplier data in the interests of saving money and reducing risk. In the same way that there are different drivers for exploiting supplier data, there also are different characterizations of the term—from basic contact information to supplier-provided internal quality metrics. In order to take advantage of the benefits of such information, it is important to understand the different types of supplier data and where they come from.
What It Is
Without a concise definition of the term, supplier data may fall into one of three basic categories: background, transactional and upstream.
Background information is consistent with the “evaluation” aspect of 820.50.a, which provides a periodic snapshot of the capability and capacity of suppliers (as it relates to “their ability to meet specified requirements, including quality requirements.”) This normally takes the form of a supplier audit. Transactional information is consistent with the “purchasing data” aspects of 820.50.b and relates to products and services ordered, received and paid for. This is a traditional source of supplier quality metrics in the form of price, quantity received, quality received and on-time delivery.
Upstream information can be described as an extension and expansion of the first two categories. It looks at trends, in addition to “snapshots in time.” It looks at the movement and stability of product before it is received—i.e., “upstream” in the supply chain. And it typically combines these measures with other aspects of supply and risk management to form a dynamic supplier scorecard.
In surveying dozens of leading medical device manufacturers, it was found that most of these companies suffer from gaps in their supplier data. In other words, many companies have one or two areas covered, but not all three.
Why It Is Important
The bottom line is that companies with better supplier data will save money through fewer supplier problems and better use of finite supplier quality resources.
Problems detected early are less expensive to deal with. Catching problems early, or preventing them before they hit the loading dock, requires visibility across the organization and at the source. The growing emphasis on risk management tools is a good indicator of how important companies believe it is to anticipate and act on problems early.
Focusing on strategically important (as well as “problem” suppliers) will have a greater impact than spreading core resources across the whole supply base. Good supplier data will allow a company to right-size the amount of oversight required at a given supplier: more at strategic and problematic suppliers and less at stable, non-critical suppliers.
Where It Is
Ironically, much of the supplier data that would facilitate better purchasing and supply decisions are already being captured through existing operations. The challenge is to develop the means to consolidate and distribute this information to stakeholders across different divisions within the organization.
Consistent with the different perceptions of supplier data, methods of capturing and managing such data vary. ISO 13485 and 21 CFR 820 only go so far as to say that it must be defined and recorded—which they should.
There are many commercial systems that claim to satisfy all supplier data needs, but these typically are limited to one category. For example, enterprise resource planning (ERP) systems are exceptionally good at handling transactional data. Some of them can accommodate background data, but they are not designed to accommodate upstream data.
Similarly, software systems used to maintain quality are exceptionally good at handling background data, but do not easily combine this with transactional and upstream data.
Upstream data capture systems (with the exception of spend management, where numerous commercial systems exist) is typically a homegrown affair. This varies in complexity from manual (e.g., emailing spreadsheets), to semi-structured (e.g., supplier portal), to automatic (e.g., data feeds).
Companies that successfully have tapped into all three categories use a combination of existing ERP, quality and supplier-facing applications to capture the data. Depending on the method used (either manual, batch or through a data warehouse), the information is combined and distributed in a way that allows purchasing and quality stakeholders across the organization to make informed decisions.
Why Companies Struggle With It
One of the reasons companies struggle with supplier data is that they only focus on one or two of the three categories—and if the purchasing and quality functions are not strongly aligned, even these are handled in isolation. Adding the decen-tralized nature of these functions across divisions (and the natural data boundaries that result) means that a lot of good information is not being shared.
How to Get the Most Out of It
For multi-divisional companies, the easiest way to leverage supplier data is to share it. Obviously keeping within the bounds of confidentiality, sharing supplier data—even informally—within an organization provides visibility that helps anticipate problems and gain purchasing power. With several regulated industries sharing supplier data between companies—even between competitors—there is no good reason why one company shouldn’t share data between divisions.
A major benefit from good supplier data is the effective planning and coordination of resources. Audit programs based on current supplier information spend less time auditing suppliers that are no longer being used, and more time working with suppliers that are strategically important or high risk.
Good supplier data provides a foundation for risk management. Leading medical device manufacturers are using “supplier scorecards” as a means of anticipating problems and focusing their purchasing and quality efforts. Good supplier scorecards combine the three categories of supplier data and match these against supplier criticality and impact of disruption, to determine immediate actions and long-term supply strategies.
The Payoff
There are many benefits from having better supplier data, from controlling supplier numbers to closer strategic relationships. However, justifying the time and effort required involves making a convincing business case. The good news is that the relatively low investment required can be offset by only a few cost saving examples.
An obvious return on investment from better supplier data is the reduction in duplicate work.
Divisions in large companies that can take advantage of pre-existing audit and performance data from other divisions will save on their own audit costs. Using even a conservative figure of $5,000 per audit, saving 100 duplicate orders out of many thousands of suppliers provides a healthy foundation for investing in better systems.
Another area of return comes from right-sizing quality controls for suppliers according to risk category or performance. For low-risk and proven, stable suppliers, a reduced inspection approach may be taken, which delivers tangible savings against 100 percent inspection and more frequent audits. Again, taking simple, representative cost savings (reduced number of audits, reduced number of inspections x number of deliveries) and multiplying them across a broad supply base, provides a substantial return.
The one area of savings that makes all the others pale by comparison is that of preventing a field failure.
Recalls and failures are by far the costliest aspects of supply chain failure, but they also are difficult to quantify, and like insurance, even harder to tie back to a supplier quality management program.
The scale of these savings, however, demands consideration—even if they cannot be accurately quantified.
A good supplier data program reinforces every aspect of supplier quality, from developing fewer and better suppliers, to reducing internal and external failures, to optimizing supplier quality resources. Companies that take advantage of this by tying together background, transaction and upstream data will find their primary goals of improving quality and reducing cost will be much less of a struggle.