Product recalls and safety scares seem to have reached epidemic proportions. And just like any illness, there are only three ways to deal with them: prevention, diagnosis and treatment.
Whether it be fresh produce, toys or pet food, protecting and building your brand is your single most important mission. At the end of the day, your customer looks to you as the responsible party, not the government, your supplier or their subcontractors. So any steps that you can take to defend your brand in consumers' eyes are worth the effort.
Given the limited resources relative to the size of trade, it is not feasible to rely solely on government testing and oversight. In addition, it is nearly always preferable to institute your own control processes rather than rely on a regulatory mechanism that will likely be more cumbersome and less efficient.
The "illness" analogy for consumer products safety is straightforward: The combination of recent events, heightened consumer/media awareness and ever-longer supply chains means that the challenge has never been greater for companies to treat symptoms before they progress into serious illnesses.
Managing the process and enormous amounts of data needed to have good information about your products, suppliers and risk requires a highly structured approach enabled by technology. The good news is that with the right solutions, you can simplify these tasks and:
• Reduce your exposure to product safety risks
• Better communicate to your suppliers the expectations you have for them in product safety
• Improve visibility into activities in your supply chain
• Establish a consistent and coherent frame-work for grading that is applied across all areas of your business and doesn't vary from one category to the next
• Improve your ability to identify and respond to problems when they occur
Focus on Prevention
Good "prevention" practices can be broken down into four components: sourcing process improvements; supplier site visits; product testing and reporting; and supplier performance management and scorecarding.
Each step is critical and the information and actions from each step feed the next.
Step 1: The Sourcing Process
As any negotiator knows, the time when you've really got a supplier's attention is prior to putting a relationship in place. By carefully evaluating and selecting suppliers and setting clear and enforceable expectations about performance, you can reduce your company's exposure to quality and safety issues.
Use of a structured and consistent strategic sourcing process, appropriate questioning and testing during the RFx period, and the right tools to communicate with and evaluate suppliers are all integral to this process. Some concrete steps taken by best-in-class companies in this area:
• Include detailed questions about product safety practices and certifications in the RFI
• Set product safety expectations in your vendor selection criteria
• Provide a consistent and structured process via an online system for collecting supplier responses to all RFxs to make sure all suppliers, bidders and categories are adhering to the same set of standards, with customizations where necessary
• Develop and implement scoring mechanisms for supplier selection that include product safety attributes. For example, award decision criteria could be driven 40 percent by price, 20 percent by service, 25 percent by product safety compliance and 15 percent by quality metrics
• Set the expectation early on product testing, site inspections and certificate renewals
• Include product warranty clauses in the RFI, RFP and final agreements
• Educate potential suppliers about the systems and processes that will be used to judge ongoing performance (e.g. scorecarding)
The expectations and requirements established in the sourcing process provide the foundation for the relationships that follow.
Step 2: Supplier Site Visits
As important as a strong sourcing process is, it does not replace the need for supplier site visits. Such visits should not be "meet and greet" events where suppliers roll out the red carpet and have everyone on their best behavior.
Instead, they need to be structured properly so that you can capture consistent, valuable information about both current and prospective suppliers. When planning site visits, make sure to include the following:
• Specific objectives for the visit
• Structured information capture templates and questions
• Grading protocols that are objective and consistent
• A method for gathering and housing all the information collected in a single repository that can be easily accessed and drive scoring
After the visit, you should be able to determine an objective overall score for the facility that matches up against the criteria you've set during the sourcing process. This information, coupled with testing results and reports, can then be fed into the Supplier Performance Management system to drive scorecarding.
Step 3: Product Testing and Reporting
Good product safety practices are a core competency of all successful companies. Specific testing methods will depend on the unique product and regulatory requirements of the company's industry, but companies typically either conduct testing themselves or contract with a specialized firm for assistance.
Regardless of the chosen route, the key is to integrate product testing into a structured framework that provides:
• Visibility to results across the organization through a single repository
• Mechanisms to update results as new information becomes available
• Exception-based reporting that alerts you to potential areas of concern
• Consistency across all of your processes and product areas
• Ability to incorporate testing results into a broader supplier performance management and scorecarding process
Step 4: Supplier Performance
Management and Scorecarding
Once you've established a relationship with your supplier and done your due diligence, it is imperative that you follow through on the commitments you have made after selection. A structured approach to supplier grading and feedback will make it easier to drive continuous improvement via consistent and objective measurement as well as provide a single repository for all the information.
In designing such an approach, take care to:
• Be upfront-It is now a common practice to introduce formal risk and supplier management programs in RFIs and RFPs.
• Invest the time to identify your most critical suppliers. Common factors to consider when developing this list include spend, criticality (impact on business, available competition, contract expirations) and product risk.
• Establish clear, well-defined and consistent performance criteria. Samuel Clemens once said, "If you want me to write a shorter book, give me more time." The same is true for the development of performance criteria and performance indicators.
• Make the criteria, process and systems consistent and standardized across as wide of a base as possible. This will enable you to compare like-suppliers in an objective, "apples to apples" manner. It will also provide your organization with the ability to inform suppliers where they rank and reward good performance. (The ranking principle is particularly compelling in areas that can be sourced frequently and that have high levels of competition because previous scorecard results can be factored into subsequent sourcing decisions.)
• Leverage exception-based reporting to quickly identify suppliers performing below the minimum baseline established by the company and trigger a proactive response by your company's relationship owners.
Risk and supplier performance management is a rapidly evolving business function that will only continue to grow in importance.
Very soon, companies will not only track the percent of spend with an approved supplier in a particular category, they will also track that supplier's overall quality rating. This provides the organization with an ability to not only ensure inputs are purchased from approved suppliers, but also from the highest ranking suppliers as well.
Make no mistake, no matter how robust the processes and systems you put in place, you will never completely eliminate the risk of a product safety incident. The company will still always have on file:
• Documented proof of your monitoring program and processes
• Compiled bidder RFI/RFP responses and supplier scorecards
• Records of alerts and action taken
• Ready access to information for litigation support
• Track issues to warranties and rebates during supplier reviews
• All of the above housed in a single repository
Ultimately, by combining the four dimensions of supplier management (sourcing strategy, site visits, product testing and scorecarding), an organization will be better able to reduce risk of a product safety incident and better equipped to respond to any issues.
Above all, you will have taken every step possible to protect your brand and your customers' trust.
Kris Colby is a senior manager in the Spend Management Services group at Ariba Inc. Visit www.ariba.com.
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