Today, consumer packaged goods (CPG) manufacturers are under intense pressure to deliver quality products while keeping costs down. The push to globalize to meet customer demand, coupled with increasing mergers and acquisitions, makes it almost impossible for CPG companies to cost-effectively manage the quality of ingredients and materials across the supply chain.
ADVERTISEMENT |
If such increased business activity isn’t stressful enough, new regulations mandated by the Food Safety Modernization Act (FSMA), or via trading partners, are forcing CPG manufacturers to implement supplier quality management procedures—and prove that the supplier quality regimen is actually executed.
Then there are the risks posed by social media. At least regulators don’t speculate; they are interested only in facts. But what happens when you are trying to defend the quality of your brand from some arbitrary accusation that has been widely publicized via social media, especially when that accusation is due to the business practices of one of your suppliers, something you as a manufacturer have little control over?
Based on conversations I’ve had with several CPG manufacturers, they don’t have a really good grasp on where ingredients and materials come from. That’s not to say they don’t know which suppliers they buy from; every manufacturer has some sort of ERP system. But that is exactly one of the issues: ERP solutions are designed to pay, and the level of visibility the quality department can get out of ERP is, at best, simply the parent company of the supplier you source from. At worst, it’s often just a broker.
ERP systems weren’t designed to provide the level of detail required to comply with the new regulations. The FSMA now requires that every manufacturer be able to show which supplier sites are providing which ingredients and materials to which manufacturing sites, and also that those supplier sites meet the quality programs put in place via the manufacturer’s supplier quality management program. To comply with the FSMA, companies will have to audit every supplier site based on risk, as well as ensure that all required documents are on file for every supplier site. Emails, faxes, and paper, the common methods used to communicate with suppliers, can’t ensure that companies have complied with new regulations. Moreover, they will add such a high cost to quality that most companies will see a drop in top-line revenue due to the hit on product margins.
So back to the original question: How do manufacturers comply with regulations or defend brand integrity? The following five-step best-practice methodology to implementing supplier quality management will take the complexity out of managing supplier quality and also allow you to put a program in place that has sustainable business benefits associated with each step.
Step 1: Establish a supplier foundation
1. Create a single repository of all of the suppliers that you work with—the supplier sites where your ingredients or materials are actually sourced from—and the class of ingredient or material those suppliers provide.
2. Leverage your new-found knowledge of who your suppliers are to put an effective audit program in place
3. Use a workflow-based tool to ensure that your audit programs and any follow-ups are being executed in a timely manner, and if they aren’t, that all parties involved are notified.
By executing these three steps, you will reduce the risk of unintended exposure, be able to answer FSMA questions about which supplier sites actually provide your ingredients, and be able to manage the cost of audits and formal risk assessments.
Step 2: Put an effective supplier on-boarding capability in place
There are several reasons why companies need to on-board new suppliers:
1. As you execute your new audit program, you find some of the suppliers you are currently working with are not up to snuff.
2. You just acquired another new company and need to quickly on-board new suppliers.
3. The new-product introductions being planned by marketing and R&D require ingredients your current suppliers can’t get you.
No matter the reason, being able to quickly on-board new suppliers will not only make you look like a hero but also can improve your company’s ability to contain costs and grow revenue.
Step 3: Improve the management of the ingredients you source from suppliers
There are two components to this step:
1. Further expand your supplier repository to include which sites provide which ingredient or material classes, and also what the actual ingredients or materials are.
2. Once you have a deeper understanding of your suppliers, you can effectively communicate ingredient-specification changes driven by you or the supplier, thus ensuring you don’t produce products using the wrong ingredient specs. This allows quality to play a huge role in both reducing cost of goods sold and cost of quality, while enabling effective risk and change management.
Step 4: Institute integrated incident management
It’s great that you now have a handle on your suppliers, but do you really have a great handle on your internal quality or the impact the suppliers’ ingredients and materials have on your internal quality operations? In this step you put a quality management system in place (Excel spreadsheets don’t count) that will truly allow you to understand the effect that the sourced materials have on internal quality incidents and complaints from the market. This system will also make it easy to collaborate with suppliers so you’re no longer forced to work via email, phone, and fax. It will simplify communication and create the type of collaboration that make suppliers want to work with you to resolve issues affecting your product quality as quickly as possible. This leads to reduced raw material costs, improved yield, and reduced raw material variability, as well as increased supply chain reliability.
Step 5: Move to real-time performance management
Once you’ve implemented all the steps above, you have the information required to put a true supplier performance management system in place, one with all the key performance indicators (KPIs) you require—such as on-time delivery, supplier incidents per X lots of ingredients, number of audit findings, and time-to-resolution per supplier. No matter what KPIs you decide to use, being able to focus on which suppliers or internal manufacturing sites are having the most trouble meeting your quality goals can help drive continuous supplier quality improvement and operational productivity. Real-time performance management can also reduce audit and oversight costs, and increase the success rate of new product introductions.
In summary, while managing supplier quality can seem complex and daunting at the onset, by implementing a simple five-step process, quality professionals can achieve the regulatory and operational goals set in front of them while adding tremendous value to the business.
Editor's note: The author and Quality Digest editor in chief Dirk Dusharme will be presenting a webinar on this topic, “The Positive Impact Managing Supplier Quality has on Meeting Your Regulatory and Operational Goals,” on Tuesday, June 30, at 2 p.m. Eastern, 11 a.m. Pacific. Click here to register.
Add new comment