Six Pitfalls to Avoid in Supplier Management

Six Pitfalls to Avoid in Supplier Management

Managing suppliers is fraught with challenges.  Rare is the executive who has not made a mistake.  In this article, I look at some common mistakes – most of which I’ve made myself – and how to avoid them.

Supplier Management Mistake #1:  English Only

In our global supply chain, not having someone — even if it’s an independent third-party — fluent in both your language and the language of your supplier is a sure path to failure.

You can compound this further by limiting yourself to someone who only knows the language, not the culture.  The culture provides the context, the slang, the idioms, the unspoken assumptions.  Cultural awareness is the body language that tells you whether the “maybe” is based on an honest “I don’t know” or a certain culture’s way of saying “no.”

When dealing with suppliers to medicinal products, language skills and cultural awareness spell the difference between innocuous and poisonous.

To mitigate this risk, even if you cannot afford to hire dedicated personnel or consultants who know the language and culture of your supplier, then look to your local university.  Most universities have language, literature and regional studies departments upon whom you can inexpensively draw for the insights you would not otherwise know.

Supplier Management Mistake #2:  Assuming not Assessing

Failure to assess risk as it relates to you and your needs often comes about when someone says, “Well, these guys are a big player so they must know what they are doing.”  There are many reasons why companies are small or big, none of which may have anything to do with what you need.

If you want to know the real-world experiences of firms like yours when working with a potential supplier, ask for a list of current clients your size, that are in your industry, and who are doing your projected dollar amount of business with them.  You don’t need contact information, just an idea of who has used the supplier in the past.

I advise my clients to do this before any detailed risk assessment of the supplier.  Review the supplier’s response for three red flags that indicate potential trouble ahead:

  1. the supplier does not have any customers like your firm
  2. the supplier used to have customer like your firm, but not any longer
  3. the supplier no longer promptly returns your calls once they see the ballpark dollar amount of business you plan to do with them

A simple email asking about supplier customers comparable to you in those three ways—size, industry, estimated dollar/euro value of the business conducted—is the quickest way to establish if a vendor is viable for further consideration.

Supplier Management Mistake #3:  Excluding IT

Most information technology (IT / ICT) departments have dealt with more vendor management issues than you may realize.  Ignoring a good source of in-house experience is not a lean compliance practice.

In addition, so much of what you receive from your supplier — whether it’s a contract sterilizer, a bottle maker, chemical supplier, etc. — will have electronic information and computers associated with it, so that excluding your IT department from helping you manage and qualify your suppliers is akin to relying upon the “under the shade tree” mechanic to keep your modern car with its computer chips running in tip-top shape.

Supplier Management Mistake #4:  Failure to Plan Ahead in Your Contract

Contracts document expectations.  While often crafted in language more suited to the courtroom than the meeting room, failing to use the contract to spell out specific regulatory and quality expectations is a typical pitfall when dealing with suppliers.

The best way I’ve seen to avoid this relies upon use of contract addendums such as technical or quality agreements.  The contract should reference these, which then allows you and the supplier to update the quality or technical agreement as time goes on without having to redo the contract itself.  In essence, you are creating a mini-master services agreement.

One added bonus of this approach is the elimination of “under the table” expectations.  Placing written expectations into addendums allows both parties the chance to adhere to both the letter and the spirit of the agreement.

Supplier Management Mistake #5:  Overlooking Business Culture

The business culture of suppliers that you may want to involve in your new product development efforts or to whom you plan to outsource services such as clinical site management or complaint handling, is particularly important.

You need to be comfortable with their philosophy and management style.  It doesn’t necessarily need to be identical to yours, but it should be compatible.  Test this by providing some sample situations based on those you’ve faced and ask how they might respond.  In the realm of personnel hiring, this trick is known as “behavioral interviewing” and is very good at identifying future behavior of potential employees.  Given that FDA assumes your suppliers are extensions of your company, then interview the supplier as such.

Supplier Management Mistake #6:  Ignoring Outside Opinions

The last pitfall to avoid is ignoring the “facts,” such as they may be.  Previous warning letters from regulatory agencies, audit findings (like 483s), regulatory inspection summaries, third party certifications or accreditations, and even awards are all records to examine.  For instance, a supplier may be able to provide you an audit certificate from a mock FDA audit or even the summary report – both are excellent documents to review and retain in your supplier management files (make sure you are retaining the right supplier management records).

For critical suppliers, I advise my clients to also scan the supplier’s known customers, particularly those closest in business-type to my client.  What 483 audit findings have a supplier’s customers received?  Are those related to the services or materials provided by the supplier?

This is the information to also document in your due diligence reports.  Your goal, at minimum for critical suppliers, is to make sure you have identified all reasonably potential risks of dealing with that supplier so you can then take the appropriate steps to control and mitigate.  If you need help putting together a lean compliance supplier oversight program, get an outside expert before you select your critical suppliers.  Examining the potential impact of a supplier is an important piece of the supplier management puzzle.

Final Thoughts

In our global world of multinational companies and virtual startups, patients and regulators are less and less tolerant of executives who struggle to learn from their mistakes.  Compounding one failure after another is not a sign of good leadership or competent compliance.

Originally published in SmarterCompliance 2(5), May 2008

For business-savvy help managing your suppliers, email Cerulean today