Friday, March 8, 2013

Supplier Inspections: Don't Avoid Them

Supply inspections are really important. In times of constrained travel budgets and lean staffing, the management might decide to avoid these. However, these inspections are important because they lead to unfiltered and valuable information. The next question is: Which suppliers, how often and what to assess?
Linda Michels, vice president, corporate learning systems, ADR North America gives us an approach for this. A four box method is used in which you have the total spend levels with a particular supplier on the X axis and difficulty in sourcing the material on the Y axis. The values on either axis may be categorized as high or low to create the four boxed graph as shown in the figure. Each box represents a category: Leverage, Acquisition, Critical and Strategic.

Suppliers may be put in any one of these categories to determine the frequency of inspections. The suppliers placed in the "Acquisition" category do not require inspections as the spend levels are low and the material is easy to access. The "Leverage" category suppliers should be visited sporadically in order to apprehend their costs structure and assess the quality and efficiency of the company’s operations.

“Critical” suppliers need to be visited to mitigate any risks with respect to availability of the material. The ones that fall into the “Strategic” categories will require regular inspections to assess risks and identify opportunities for collaboration and innovation.

These inspections are bound to give information that you wouldn't otherwise get from an account manager communication executives. Again, preparation is a must for extracting the maximum value from these inspections. It is important to determine beforehand, what it is that you need information about. This could be information pertaining to R&D, costs or risk strategies. A technical expert might well be worthwhile to take along, just to be thorough.   

Checklists are a good way of ensuring you get all the desired information. These can be sent to the supplier in advance so that the information is ready when you arrive. These visits not only offer knowledge enhancement, but also provide an opportunity for relationship building and set the stage for future collaborative projects.

Audits ensure that supplier expectations are met even during tough economic times when suppliers are most likely to cut corners and surpass important processes. In these times there is often a temptation to skip these supplier visits, which should be avoided.  If done with due diligence and preparation, inspection times can be short and worthwhile. Through collection of data for cost analysis, these visits can lead to significant cost reductions apart from the reduction of the supplier’s margins.

What aspects would you look at when inspecting a pharmaceutical CMO versus an auto parts supplier? Would there be any similarities in the audits? What kinds of problems would you expect to face if the supplies were outsourced? How do you believe organizational structure and culture of the supplier would affect the inspections and the relationship between the two companies? 


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