Mitigating Third-Party Risks: The Benefits of Extending Quality to the Supply Chain

Supply management is a critical component for bio/pharma companies to ensure the quality and safety of finished goods. With the increased prices and regulatory challenges, industries are outsourcing, expanding the supply chain’s risk and complexity.

Research from a 2020 Deloitte survey shows that 84% of respondents said their organization had experienced a third-party incident in the last three years (1).A third-party supplier is a company or entity with whom you have a written agreement to provide a product or service on behalf of your organization.

Companies failing to establish a robust supplier management process expose themselves to financial consequences, compliance concerns, and damaged reputation. By synchronizing and integrating data with suppliers, it will allow collaboration, improve speed-to-market times, and enable implementation of best practices and standardized processes.

Without this insight, it would be nearly impossible to see which suppliers are most responsive, resilient, and aligned with a company’s values. Ensuring that suppliers are meeting regulatory requirements also becomes a difficult feat.

The following describes how organizations can gain visibility into critical supplier activity, gain insight into selecting the best suppliers for their business, and nurture collaboration with critical third parties.

Common challenges faced in supplier management

Organizations that lack effective external quality management capabilities, and instead use manual processes, may find themselves with gaps in communication, process delays, and potential product issues in the market. When this happens, it’s the stakeholder that faces the consequences, not the supplier. Managing an ecosystem of suppliers in this manner presents various risks to an organization.

Some of the more prevalent challenges to consider include the following:

The Nth party. Stakeholders may have thousands of third-party relationships. Lack of oversight into this supplier ecosystem can leave an organization vulnerable to many risks. Organizations must also consider risks posed by the Nth party—the third parties’ suppliers. These connections pose risks, particularly given the fact that the stakeholder rarely has visibility into who they are or that they exist at all.

Supply chain disruptions.The COVID-19 pandemic is a key example of how disruptions can wreak havoc on the supply chain. The industry has seen sourcing issues, transportation issues, and lack of supply chain traceability (2).

Siloed processes. When organizations operate in silos, each department essentially is working in their own bubble and missing key data and insights from other operational areas that may be relevant to their process.

Hindered visibility. A siloed supplier management process results in lack of visibility into the supply chain. Stakeholders may find themselves reacting to supplier quality events, rather than being proactive in preventing them from occurring in the first place.

Onboarding risk. Good supplier management does not start after suppliers have been onboarded. It’s essential to know which suppliers are high-risk before the onboarding process. Supplier management needs to start at supplier evaluation and continue through selection and onboarding.

Inefficient collaboration. Manual processes such as paper, email, or phone make it difficult to share data and track items like change notifications from suppliers. The result is a time-consuming process that relies on manual updates and leaves room for human error.

Supplier collaboration makes a major difference when done well. A McKinsey survey shows that companies that collaborate regularly with suppliers see higher growth, lower operating costs, and more profitability (3).

How to transform the supplier management process

An effective supplier quality management process is a critical component for ensuring a high level of brand equity, customer satisfaction, and patient safety. Organizations must align supplier performance with corporate targets to ensure they’re using the best suppliers for their needs.

Manually managing suppliers results in process gaps due to siloed systems, incomplete risk assessments, inefficient means of reporting, and an increase in product deviations and recall inability to provide reliable data on supplier performance.

Organizations can start taking steps toward transforming the supplier management process by taking the following measures.

Automating supplier quality management. Using an automated supplier management system provides visibility into the supply chain, so external issues can be found before they escalate. With all supplier data hosted in a central system where it can be accessed
by authorized parties, quality events can be managed consistently and efficiently. All third parties are managed from a single point, making for easy comparison, with automated scorecards that reflect both current data and historical track records. This capability enables organizations to respond efficiently to quality events, and better equips them to deal with audits. Reducing the time to respond to quality events translates to cost savings for the manufacturer.

Managing quality across the supply chain poses a lot of complexity. An automated solution alleviates this by enabling traceability and making each third party accountable for its role in the supply chain.

Integrated functionality of an automated system can provide continuous and clear risk assessments on low-, medium-, and high-risk suppliers. It will also enable documentation of collaboration with suppliers directly within the system.

Breaking down silos. Silos hinder communication. Integrated supplier risk management eliminates silos, which could otherwise disrupt supply chains, cause surprises and business delays, result in duplicate effort across various departments, and slow down the time it takes to respond to quality events.

An integrated approach to supplier management tightly connects an organization with its supplier ecosystem. In doing so, it provides the insight needed to help organizations avoid surprises, meet compliance, and respond faster to risk events.

Be proactive about supplier management. The ability to act proactively is critical for preventing incidents due to poor supplier quality. Organizations can start taking steps to proactively manage suppliers by following these best practices:

• Provide suppliers with key performance indicators (KPIs). Often, organizations focus on the efficiency and effectiveness of internal operations, but do not apply the same approach to third parties. Organizations can ensure that suppliers are meeting performance expectations by providing clear KPIs that measure supplier quality performance.
• Communicate effectively: Communication is key for driving collaboration with third parties. Organizations should engage suppliers and provide routine feedback on the quality of goods and services and have a clear understanding of supplier capabilities.
• Maintain an approved supplier list. Know upfront which suppliers are approved to do business with by keeping and maintaining an approved supplier list. This will limit risks by ensuring you’re only engaged with the best suppliers for your business.
• Leverage cross-functional data. An organization’s quality management efforts must be interconnected among cross-functional teams to truly understand the impact of risks across the enterprise.

Build a culture of quality with suppliers

Cloud-based quality management systems (QMS) can help ensure an integrated quality network across suppliers. Internal quality management processes connect with third parties, streamlining communication and delivering comprehensive visibility into issues from raw material through manufacturing to the customer experience.

Organizations can use QMS solutions to successfully identify vulnerabilities, gain visibility over supplier tiers and into quality processes. It helps increase supplier accountability, ensuring that suppliers are aligned with resolution requirements and gives insight into which suppliers are top performers.

The result is a collaborative supplier management process that allows visibility into the process so you can identify potential issues before they escalate. Organizations that implement an integrated supplier quality management solution will have the tools to start tackling supplier risk proactively and ensure only safe, quality products reach the market.

References

1. K. Park, D. Griffiths, Dr. S. Sen, “Extended Enterprise Risk Management (EERM) Third-Party Risk Management (TPRM) Global Survey 2020,” Deloitte, 2020.
2. CRB Group, “Managing Supply Chain Disruptions in the Pharmaceutical Industry,” 2020.
3. A. Gutierrez, et al., “Taking Supplier Collaboration to the Next Level,” McKinsey & Company, July 7, 2020.PT

About the author

Zillery A. Fortner is product marketing manager, Sparta Systems, A Honeywell Company.

Article details

Pharmaceutical Technology
Volume 45, Number 9
September 2021
Pages: 56-60

Citation

When referring to this article, please cite it as Z. A. Fortner, "Mitigating Third-Party Risks: The Benefits of Extending Quality to the Supply Chain," Pharmaceutical Technology 45 (9) 2021.