Over the past few decades, manufacturing has changed dramatically from companies making products primarily within their four walls to managing a complex worldwide supply chain. According to the FDA, over 80% of the ingredients used to make drugs for the US market now originate offshore. The same is true for medical devices, consumer products, discrete manufacturing and almost every product in use today. Many companies have limited or no manufacturing capabilities today. While they develop products, they have contract manufacturers make them. This further outsourcing of not just supplies and components but the actual manufacturing and distribution of product has created a lack of control over finished goods. While using contractors located around the world has reduced the cost of the finished products, it has also added new levels of risk. Purchasing and sourcing departments use technology to find the cheapest price for goods needed. Most do a good job with component specifications and availability in attempting to assure a consistent quality and delivery of finished products the consumers expect. Brand and company reputation depends on it. However, within the complex supply chain where contract manufacturers have their own suppliers, who have their own suppliers and so on, there is always the danger that somewhere there is a supplier that is willing to take the risk to cut one corner too many to provide the lowest cost at the highest profit for a component. When this happens, there is a danger to not just one provider of finished products, but many.
A few years ago, a single supplier of a peanut based ingredient single handedly impacted the entire peanut based food industry. This company supplied a contaminated ingredient that was used by over 390 separate companies in nearly 4,000 different peanut products, including peanut butter, candies, oils and more. The results were over a billion dollars in losses to the industry, with peanut butter sales dropping by more than 25%, regardless if the ingredient was used in the product or not. More important than these financial losses was the danger to the consuming public. Over 700 people were made ill by this contamination, and there were 9 confirmed related deaths. The supplier was forced to close their doors, and criminal charges were brought against the executives of this company. This same scenario of a single bad supplier affecting an industry has happened in pharmaceuticals, implanted medical devices, electronics, aerospace, automotive and others.
Across industries there has been a dramatic increase in the number of products on the market recalled. These are products with quality issues that pose a threat to consumers that were not caught or dealt with during the manufacturing process. According to a recent Deloitte study, 52% of product recalls have a root cause of supplier created issues. However, if your company’s name is on the label, you are ultimately responsible for that product. You can’t just pass the blame to a contracted supplier.
With this increase of quality issues and recalled products, most companies still depend on legal agreements and perceived indemnification to protect their brands and reputations. The good news is that most contract manufacturers and suppliers meet the terms and conditions of these agreements. However, as in the peanut example, all it will take is one supplier finding a way to skip a step, use a substandard part, or substitute a specified ingredient for a cheaper one that may affect the finished product, and damage a brand and a company’s reputation for a period of time or in a way that is difficult to ever recover from.
Do you know how many different companies across the globe are making some ingredient, component or part that goes into your finished product? Do you even know who these companies are or where they are located. Parts are imported from one country to another to make something else, and that now becomes the country of origin. How many people out of the control of your company touch a part that can affect your finished product?
Are you scared yet? While this seems to be an insurmountable problem, there are things best in class companies are doing to dramatically reduce this risk. In subsequent blogs we will explore what these companies are doing and how Sparta Systems, with their expanding suite of quality management solutions is leading the way to successfully manage your supply chain to keep it under control with visibility into the quality processes of your suppliers while providing you with critical quality metrics so you can take actions based on facts.
Remember, hope is not a strategy when it comes to the quality of your products.