Companies considering virtual suppliers must first make sure their supplier qualification processes can handle such businesses.
There are two common pitfalls for companies dealing with virtual suppliers: not recognizing they are probably already doing business with one, and not being prepared to qualify and oversee them, John Avellanet, managing director and principal of Cerulean Associates, told the Drug GMP Report.
“Step one is to see if your supplier qualification process requires an onsite audit,” Avellanet said. “If so, you’re not prepared. After all, it’s quite impractical to conduct an onsite audit of a virtual supplier.”
Avellanet has seen some manufacturers with standard operating procedures (SOPs) that state all critical suppliers require an onsite audit. But then the company will classify a distributor as a critical supplier, “and yet that distributor is nothing more than someone’s home address and a website.”
When establishing initial supplier selection criteria, companies should involve more departments than just product development, purchasing and quality, he said. For example, he recommends involving the legal department as part of a discussion of how much it would cost to take a supplier to court, and what other enforcement options might be.
“Thinking about your enforcement capabilities is absolutely crucial long before you choose a particular virtual supplier or select monitoring controls,” Avellanet added. “In the worst case, a virtual supplier can simply shut down and reopen as a completely different company in the span of a few days.”
Therefore, companies should work with their legal departments ahead of time to find out what documents and records would be needed in the event a virtual supplier decides to shut down. The company’s virtual supplier qualification and monitoring effort should be able to gather those records.
Companies also should verify that their quality due diligence process can audit virtual suppliers. An onsite audit is not appropriate, so this leaves activities such as paper audits and due diligence background screenings.
The most effective steps to tackle due diligence for virtual suppliers include:
- Creating two different levels of supplier criteria selection, then mapping the supply chain and, if possible, first-tier suppliers’ supply chains;
- Conducting remote due diligence including using two different tiers of supplier questionnaires, which may need to be filled out by the company’s own personnel, as the virtual supplier cannot always be counted on to return the questionnaire; and
- Assessing how the supplier conducts legal negotiations, including contracts, service level agreements and quality or technical agreements.
Once a manufacturer chooses a virtual supplier, it should monitor that supplier both cross-functionally and proactively, Avellanet said.
Ongoing controls should include check-ins, at least quarterly, with lead functional personnel across the company from departments such as quality, purchasing, shipping and receiving and IT. At minimum, simple emails or phone calls can suffice, he added.
One goal for such check-ins is to remain aware of any changes that the virtual supplier has made or is going to make. These cross-functional check-ins are one way that companies can pick up on an impending problem.
For example, if a supplier changes its email and physical address several times over the course of a year, the quality department might not be aware but other departments might.
Originally published October 2010 in the Drug GMP Report